Section 39Sec./Art. 39

Section 17 paragraph (d) of the same Act is accordingly renumbered as Section 22 paragraph (e) and is hereby amended to read as follows:

FINANCIAL ASSISTANCE

(e) In the exercise of its authorities under Section 11 of this Act, the Corporation is authorized to make loans to, or purchase the assets of, or assume liabilities of, or make deposits in:

(1) A bank in danger of closing, upon its acquisition by a qualified investor; or

(2) A qualified investor, upon its purchase of all assets and assumption of all liabilities of a bank in danger of closing; or

(3) A surviving or consolidated institution that has merged or consolidated with a bank in danger of closing; upon such terms and conditions as the Board of Directors may prescribe, when in the opinion of the Board of Directors, such acquisition, purchase of assets, assumption of liabilities, merger or consolidation, is essential to provide adequate banking service in the community or maintain financial stability in the economy.

The Corporation, prior to the exercise of the powers under this section, shall determine that actual payoff and liquidation thereof will be more expensive than the exercise of this power: Provided, That when the Monetary Board has determined that there are systemic consequences of a probable failure or closure of an insured bank, the Corporation may grant financial assistance to such insured bank in such amount as may be necessary to prevent its failure or closure and/or restore the insured bank to viable operations, under such terms and conditions as may be deemed necessary by the Board of Directors, subject to concurrence by the Monetary Board and without additional cost to the DIF.

A systemic risk refers to the possibility that failure of one bank to settle net transactions with other banks will trigger a chain reaction, depriving other banks of funds leading to a general shutdown of normal clearing and settlement activity. Systemic risk also means the likelihood of a sudden, unexpected collapse of confidence in a significant portion of the banking or financial system with potentially large real economic effects.

Finally, the Corporation may not use its authority under this subsection to purchase the voting or common stock of an insured bank but it can enter into and enforce agreements that it determines to be necessary to protect its financial interests: Provided, That the financial assistance may take the form of equity or quasi-equity of the insured bank as may be deemed necessary by the Board of Directors with concurrence by the Monetary Board: Provided, further, That the Corporation shall dispose of such equity as soon as practicable.