Neither the Illinois Savings Bank Act nor the corresponding administrative rules establishes specific consequences for a savings bank’s failure to meet one of the applicable asset tests. When we posed this question to an IDFPR attorney, we were told that this is a rare situation, for reasons explained below. Were this situation to arise, the IDFPR attorney surmised that the savings bank’s examiners would cite the violation and work to resolve it with the savings bank. However, the IDFPR attorney cautioned that the IDFPR does not have any tax law expertise and recommends that a savings bank faced with this situation consult with its accountants regarding the possible tax consequences for failing to meet the IRS’ qualified thrift lender (QTL) test.

To illuminate why it is rare for a savings bank to fail the QTL test, we note that Illinois savings banks are not subject to the same QTL test as their federally chartered counterparts. The Savings Bank Act incorporates the IRS QTL test by reference, but the IDFPR has promulgated administrative rules establishing three alternatives to the IRS QTL test. An Illinois savings bank will meet the IDFPR’s alternative asset tests if it: (1) has assets under $500 million, (2) has at least 10% of its total assets in residential mortgage loans, or (3) qualifies for membership in a Federal Home Loan Bank as a qualified thrift lender or community financial institution. As we confirmed with the IDFPR, a savings bank that meets any one of these tests is not required to apply the IRS’ QTL test, and it is unlikely that a savings bank would fail to meet at least one of Illinois’ three alternative tests.

For resources related to our guidance, please see:

• Savings Bank Act, 205 ILCS 205/1009 (“Status as IRS qualified thrift lender. All savings banks operating under this Act must qualify for either the 60% asset test of Section 7701(a)(19) of the Internal Revenue Code of 1986 and any amendments thereto or an asset test as prescribed by regulations of the Commissioner.”)

• Illinois Administrative Code, Savings Bank Act Asset Composition Test, 38 Ill. Adm. Code 1075.590 (“As an alternative asset test prescribed pursuant to Section 1009 of the Act, the composition of the assets, including loans and investments, of a savings bank is permitted to consist of any type, and in any amount, authorized by the Act and this Part, provided that the savings bank: a) is a member of a Federal Home Loan Bank as a Federal Home Loan Bank qualified thrift lender or community financial institution under the Federal Home Loan Bank Act (12 USC 1421 et seq.); b) has at least 10 percent of its total assets in residential mortgage loans as of the most recent fiscal year-end; or c) has total average assets for the three preceding fiscal years of less than $500,000,000. This Section does not require membership in a Federal Home Loan Bank.”)