Northwestern Mutual Life Insurance won approval from the Federal Reserve Board to deregister as a Savings and Loan Holding Company, (SHLC) averting a collision with Fed oversight beginning at the first of the year under proposed capital rules.
The board's approval of Northwestern's request is notable because it appears to be the first such deregistration request approved under a section of the Dodd-Frank Act and ahead of Basel III capital rules that are slated to go into effect for insurers with thrifts Jan. 1.
It is also notable because the commitments provided by Northwestern as described in the FRB approval letter suggest that an institution "may disregard the amount of deposits needed to maintain deposit insurance for purposes of determining whether all or substantially all of its deposits consist of trust funds," stated Goodwin Procter LLP.
The Wisconsin mutual insurer must continue to satisfy commitments it made as part of the deregistration process or face enforcement, most of which relate to banking activities, such as marketing FDIC-insured deposits.
Specifically, Northwestern and its limited-purpose savings association, NM Wealth, committed to not engage in activities beyond those permissible under section 5(n) of the Home Owners' Loan Act, must not offer commercial loans, maintain or accept demand deposits or deposits that the depositor may withdraw by check for payment to third parties, and not establish an account with any Federal Reserve Board Bank nor seek to exercise discount or borrowing privileges with the Fed.
NM Wealth also must hold at least 99 percent of its deposit in a trust or fiduciary capacity save for the amount needed to maintain deposit insurance with the FDIC. 
The letter from the Federal Reserve Board in Washington to Northwestern Mutual General Counsel Raymond Manista was dated Sept. 26.
At issue were proposed regulations that would make insurers with thrifts subject to consolidated federal supervision by the Fed and subject it to new bank-centric capital standards most insurers and state regulators believe are antithetical to the insurance business.
The request was granted under Section 604(i) of the Dodd-Frank Act.
This provision amended the Home Owners' Loan Act to exclude from the definition of SLHC a company that controls a savings association that functions solely in a trust or fiduciary capacity.
Prior guidance has suggested that at least 99 percent of an institution's deposits must consist of trust funds in order to meet this standard, but FDIC regulations require insured depository institutions to maintain at least $500,000 in non-trust deposits to maintain federal deposit insurance, the Goodwin Procter legal team pointed out.
