Operative Bank in Massachusetts for a waiver allowing it to convert to stock form without obtaining the required approval from a majority of depositors. But the agency did hold out the possibility that it could approve the conversion even if the institution doesn't technically meet the majority approval rule. In a letter to the Falmouth board of directors, FDIC Associate Director A. David Meadows wrote that the agency reviewed the co-operative bank's application and request, but determined that "the depositor voting requirement does not present a conflict with Massachusetts law in this case." Under Massachusetts law, two-thirds of depositors present at a special meeting must vote to approve a conversion, and proxy voting is barred. As a result, trying to satisfy both federal and state regulators has posed a problem for Falmouth because at least 25% of its 5,200 depositors live outside the Cape Cod community, some as far away as Florida, and could not attend a special meeting. And Massachusetts Commissioner of Banks Tom Curry has vowed to reject the application if the bank violates state law regarding proxy voting. The rejection comes just a week after FDIC officials suddenly pulled the waiver request from the agenda of a Nov. 14 FDIC board meeting. Regulators were still concerned about the depositor vote even though officials had previously indicated to Falmouth that the waiver would likely be granted. But even though the FDIC is still demanding that Falmouth obtain approval from a majority of depositors and from the state, the agency is allowing the bank to go ahead with a special meeting and make its best effort to satisfy the rules. According to the letter, Falmouth must provide regulators with the results of the vote and a detailed breakdown of the number of directors, officers, and employees and other depositors who voted for the conversion. "The FDIC will evaluate ... whether the record demonstrates that depositors have been adequately provided with the opportunity to assess the transaction and that the actual vote demonstrates proper participation by those constituents of the bank who should determine the merits of the proposed conversion transaction and who are not insiders," Mr. Meadows wrote. Falmouth has scheduled its special depositor meeting for Dec. 13 in Falmouth. "The conversion application has been approved by both regulators," said Richard Schaberg of Thompson & Mitchell in Washington, a lawyer for Falmouth. "It's only this mechanical issue of how we're going to solve the depositor voting requirement. We're pleased that we're able to go forward with our meeting in an effort to satisfy the FDIC's concerns."

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