Dougherty v. Carver Federal Savings Bank

112 F.3d 613 (1997)

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Dougherty v. Carver Federal Savings Bank

United States Court of Appeals for the Second Circuit
112 F.3d 613 (1997)

  • Written by Robert Cane, JD

Facts

The law regarding conversions from the mutual form of ownership (i.e., ownership by members) to the stock form of ownership (i.e., ownership by stockholders) with respect to savings associations has been amended over time. In 1933, the Home Owners’ Loan Act provided for only mutual charters for federal savings associations. At that time, savings associations could not be converted to stock form, or demutualized. In 1948, Congress amended the Home Owners’ Loan Act to permit the conversion of federal mutual associations into state stock associations. Initially, there was an issue with how to dispose of net worth that had accumulated in a mutual association over the years if converting to a stock association. The insiders initiating a conversion generally took a large portion of the net worth for themselves until a moratorium was placed on conversions in 1963. When Congress ended the moratorium on conversions, conversions were subject to new, comprehensive regulations implemented by the Federal Home Loan Bank Board (the board). The board was wary of conversions due to concerns of insider abuse. Over time, federal regulators made conversion easier by allowing an institution to improve its capital position if it was undercapitalized. After the savings-and-loan crisis, conversions became quite popular. Between 1984 and 1994, the number of mutual savings associations decreased from over 2,500 to 1,100. For example, more than 300 conversions occurred from 1990 to 1994. Over $5 billion in capital was raised for these conversions. In 1989, Congress passed the Financial Institutions Reform, Recovery, and Enforcement Act, which abolished the board and created the Office of Thrift Supervision. Eventually, the problem of undercapitalization of savings associations resolved, so the industry was out of the crisis. The Office of the Thrift Supervision adopted new rules concerning conversions in 1994.

Rule of Law

Issue

Holding and Reasoning (Cardamone, J.)

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