

                  UNITED STATES COURT OF APPEALS
                      FOR THE FIRST CIRCUIT
                                           

No. 95-1492

                     MIGUEL VILLAFA E-NERIZ,
              INSURANCE COMMISSIONER OF PUERTO RICO,

                      Plaintiff - Appellant,

                                v.

          FEDERAL DEPOSIT INSURANCE CORPORATION, ET AL.,

                      Defendant - Appellee.

                                           

           APPEAL FROM THE UNITED STATES DISTRICT COURT

                 FOR THE DISTRICT OF PUERTO RICO

        [Hon. Juan M. P rez-Gim nez, U.S. District Judge]                                                                  

                                           

                              Before

                     Torruella, Chief Judge,                                                     
                 Campbell, Senior Circuit Judge,                                                         
                    and Watson,* Senior Judge.                                                       

                                           

     Carlos J. Morales-Bauz , with whom Rossell -Rentas &amp; Rabell-                                                                           
M ndez was on brief for appellant.                
     J.   Scott  Watson,   Counsel,  Federal   Deposit  Insurance                                 
Corporation, with  whom Ann S. DuRoss,  Assistant General Counsel                                               
and  Richard J.  Osterman, Jr.,  Senior Counsel,  Federal Deposit                                        
Insurance Corporation, were on brief for appellee.

                                           

                         February 2, 1996
                                           
                                                  

*  Of the United States  Court of International Trade, sitting by
designation.

          TORRUELLA, Chief Judge.  This appeal seeks review of  a                    TORRUELLA, Chief Judge.                                          

decision  of the United States District Court for the District of

Puerto Rico, which entered summary judgment on behalf of appellee

the  Federal  Deposit  Insurance  Corporation  ("FDIC"),  in  its

corporate capacity.  Appellant Miguel  Villafa e-Neriz, Insurance

Commissioner of Puerto Rico (the "Commissioner") seeks to recover

FDIC  deposit insurance for the $50,000 value of a certificate of

deposit (the "Certificate" or the "CD") purchased by the Guaranty

Insurance  Company  ("Guaranty"),  which   was  assigned  to  the

Commissioner  simultaneously  with its  purchase.    The district

court held that the FDIC properly relied on the books and records

of an insolvent institution in making its determination  that the

Commissioner  was not entitled to   deposit insurance.   The sole

issue before us is  whether the district court erred  in granting

summary judgment  against the Commissioner in  his action against

the  FDIC in  its corporate  capacity.1   For the  reasons stated

herein, we affirm.

                            BACKGROUND                                      BACKGROUND

          The facts of  this case  are undisputed.   On July  20,

1983,  in  compliance  with  the  Puerto  Rico  Insurance  Code's

statutory  deposit requirement,  26 L.P.R.A.      801-809 (1976),

Guaranty purchased the  six-month CD from the Girod Trust Company

                                                  

1    In its  corporate capacity,  the  FDIC functions  as  a bank
regulator  and  insurer of  bank deposits.    12 U.S.C.     1818,
1821(a)  (1988 &amp;  Supp. 1991).   The  Commissioner does  not seek
review of that part of the district court decision that dismissed
the complaint as against the FDIC as receiver of the former Girod
Trust Company.

                               -2-

("Girod" or the  "Bank") in the principal amount  of $50,000.  On

the same day Guaranty  assigned and conveyed its interest  in the

Certificate  to the Commissioner.   Girod was not  a party to the

assignment.   Another  document was  executed on  the  same date,

entitled "Requisition to the Bank."  This  document stated, inter                                                                           

alia, that Girod would  not release the funds represented  by the              

CD, "whether the principal value or  income thereof," without the

Commissioner's authorization.   The Certificate was  itself given

to, and remains with, the Commissioner.

          Less than three months after purchasing the Certificate

from Girod, Guaranty executed a  loan agreement, unrelated to the

CD,  pursuant  to  which it  borrowed  $600,000  from  Girod.   A

promissory note for  that amount, payable to Girod, evidenced the

loan, and was due on April 26, 1984.  On January 17, 1984, the CD

became due, and  was "rolled over" -- extended for  a term of six

additional months --  at Guaranty's  request.   In the  meantime,

Guaranty had fallen behind on payments due to the  Bank under the

$600,000  loan agreement.   On  July 16,  1984,  the CD  came due

again.   Two  days after  its maturity,  on July  18, $50,000  in

proceeds  from  the Certificate  was  credited toward  Guaranty's

outstanding indebtedness under the $600,000 loan agreement.

          On August  16, 1984,  Girod was declared  insolvent and

the  FDIC was  appointed  as receiver.    Four months  later,  on

December  19,  1984,  Guaranty  also became  insolvent,  and  the

Commissioner was appointed  its receiver  in turn.   As such,  on

August 25, 1986, the Commissioner filed a proof of claim with the

                               -3-

FDIC, seeking payment  on the CD.  Having  received no payment on

the claim, the Commissioner filed a complaint against the FDIC in

the  Superior Court of  Puerto Rico on  May 22,  1991, seeking to

recover  the proceeds of the CD.   The FDIC removed the action to

federal  court pursuant to 12  U.S.C.   1819(b),  and the parties

filed cross-motions  for summary judgment.  Without ruling on the

motions, the district court requested submission of briefs on the

application of  12 U.S.C.    1823(e).   The court then  held that

that section  barred the Commissioner's reliance  upon either the

Assignment or  the Requisition,  and ordered summary  judgment in

favor of the FDIC.  On appeal in Villafa e-Neriz v. FDIC, 20 F.3d                                                                  

35 (1st Cir. 1994), this Court reversed the judgment of the lower

court and  remanded the  case for further  proceedings consistent

with  its opinion.    On February  7,  1995, the  district  court

entered  summary  judgment  dismissing the  complaint.      It is

undisputed  that the entire amount of the Certificate was set off

against Guaranty's  indebtedness, that the CD  no longer appeared

on the bank's books and records  at the time the bank failed, and

that  the  Certificate  itself  remains  in  the   Commissioner's

possession.  

                            DISCUSSION                                      DISCUSSION

                      A.  Standard of Review                                A.  Standard of Review                                                      

          This case centers on whether the FDIC, in its corporate

capacity,  was  correct  in  determining  there  was  no  insured

deposit. As the essential facts are not in  dispute, and all that

is  before us is  a question of  law, our review  of the district

                               -4-

court's decision is de novo.  See, e.g., FDIC v. Keating, 12 F.3d                                                                  

314, 316 (1st Cir. 1993).  This Circuit has not yet decided which

standard  a  district  court   should  use  when  reviewing  FDIC

insurance claim determinations.  

          There  is  a  dispute  among  the  circuits as  to  the

underlying  standard that should apply  to the review  of an FDIC

insurance claim  determination.   The majority of  circuits which

have addressed the  issue apply the deferential standard  set out

in Section  706 of  the Administrative  Procedure Act  ("APA"), 5

U.S.C.    701-706 (1994).  See, e.g., Metro County Title, Inc. v.                                                                        

FDIC, 13 F.3d 883, 886 (5th Cir.  1994) (direct petition to court              

of appeals for review  of FDIC determination); Nimon v.  RTC, 975                                                                      

F.2d 240 (1992) (direct  petition to court of appeals  for review

of  Resolution Trust  Corporation determination);  In  re Collins                                                                           

Sec. Corp., 998 F.2d 551, 553 (8th Cir. 1993) (review of district                    

court decision); Fletcher Village Condominium Ass'n. v. FDIC, 864                                                                      

F.  Supp. 259,  263  (D. Mass.  1994).    The APA  mandates  that

reviewing courts  set aside agency findings  that are "arbitrary,

capricious,  an   abuse  of  discretion,  or   otherwise  not  in

accordance  with  law."    5  U.S.C.    706(2)(A).    Under  this

deferential standard a court would "review the evidence  anew and

determine  whether the  administrative action  was arbitrary  and

capricious."  First Nat'l Bank of Fayetteville v. Smith, 508 F.2d                                                                 

1371,  1374 (8th Cir. 1974),  cert. denied, 421  U.S. 930 (1975);                                                    

see, e.g., Hymel v. FDIC, 925 F.2d 881, 883 (5th Cir. 1991).                                    

          However, a recent decision  by the D.C. Circuit creates

                               -5-

a second  option, holding that review of  FDIC determinations, to

be  undertaken at  the district  court level,  should be  de novo                                                                           

rather than under the  deferential APA standard.  See  Callejo v.                                                                        

RTC, 17 F.3d 1497 (D.C. Cir. 1994).  The Callejo  court based its                                                          

rejection of  the APA on its reading of 12 U.S.C.   1821(f) (1988

&amp;  Supp. 1991),  which provides  for judicial review  of disputed

deposit insurance  claims, and  its revision under  the Financial

Institutions  Reform,  Recovery,  and Enforcement  Act  of  1989.

Callejo, 17 F.3d at 1501 (concluding that   1821(f)(3) "supplants                 

the APA and sets up a different relationship between the agencies

and the courts"); see  Pub. L. No. 101-73, 103 Stat.  183 (1989);                               

cf. Pennsylvania v. FDIC, 881 F. Supp. 979, 983 (E.D. Penn. 1995)                                  

(rejecting Callejo's  logic  but  nonetheless  applying  de  novo                                                                           

standard of review on other grounds).  This Circuit has expressly

adopted  the aspect  of  the Callejo  decision  which holds  that                                              

initial jurisdiction to review claims for insurance benefits lies

in  the district  court  rather than  in  the court  of  appeals.

Massachusetts  v.  FDIC,  47  F.3d  456,  458  (1st  Cir.  1995).                                 

However,  the  decision in  that  case was  limited  to Callejo's                                                                         

jurisdictional holding.  Id. at 460.  Thus, Massachusetts v. FDIC                                                                           

does not determine the district court's standard of review in the

present case, and  our decision to  postpone the discussion  does

not clash with our earlier decision. 

          The  district  court  did  not explicitly  state  which

standard  of  review it  was applying,  although  it did  make an

isolated   reference,  midway   through   its  opinion,   to  the

                               -6-

"arbitrary, capricious and  contrary to law"  standard.  We  need

not  determine  which standard  the  district  court should  have

applied  at this time,  since we agree  with the  FDIC that under

either  the APA "arbitrary and capricious" or the Callejo de novo                                                                           

standard, the  district  court's decision  is correct.   Thus  we

postpone discussion regarding  the applicable standard  of review

in light of Callejo for another day.                             

                 B.  Was this an insured deposit?                           B.  Was this an insured deposit?                                                           

          At  the core  of the  parties' dispute  is whether  the

Commissioner  was  entitled to  deposit  insurance.   That  issue

depends on whether  there was an insured  deposit at the time  of

Girod's failure, a question  which in turn hinges on  whether and

when erroneous  bank records  are conclusive.   It is  undisputed

that the Bank's account records did not disclose the existence of

an  account on  the  date Girod  failed,  and that  the  original

Certificate is in  the possession  of the  Commissioner, and  has

been since July 1983.  The FDIC argues that under its regulations

and the applicable case law, it is justified in relying solely on

the failed Bank's account records, so that its refusal to provide

insurance  was  proper.   The  Commissioner  counters that  under

Puerto  Rico  law  the FDIC  should  have  known  the setoff  was

improper,  because   the  Certificate  was  not   in  the  bank's

possession.   Because  we  agree with  the  FDIC, we  affirm  the

decision of the court below.

          In  the Federal  Deposit  Insurance Act,  12 U.S.C.    

1811-1831(d) (1982)  (as amended), Congress  defined "deposit" to

                               -7-

mean "the unpaid balance  of money or its equivalent  received or

held by  a bank  or savings  association in  the usual course  of

business and  for  which it  has given  or is  obligated to  give

credit,  either conditionally or unconditionally,  . . . or which

is evidenced by  its certificate of deposit . . . ."  12 U.S.C.  

1813(l)(1) (Supp. 1995).  "Insured deposit" is defined in turn as

"the net amount due to  any depositor for deposits in  an insured

depository institution  as determined under sections  1817(i) and

1821(a) of this  title."  12  U.S.C.   1813(m)(1)  (1988 &amp;  Supp.

1991). 

          The  FDIC   contends  that  it  is   entitled  to  rely

exclusively  on the account records of  the failed institution --

and so it did  not have to look further afield  to track down the

Certificate.  Our analysis  of the FDIC regulations, the  body of

case law,  and the  policy concerns underlying  these regulations

leads  us  to agree.   First,  the FDIC  regulations, promulgated

under congressional authorization, Abdulla  Fouad &amp; Sons v. FDIC,                                                                          

898  F.2d 482, 484 (5th  Cir. 1990), themselves  provide that the

amount of  an insured  deposit at  the closing  of a  failed bank

shall be  "the balance of principal  and interest unconditionally

credited to the deposit account as  of the date of default of the

insured depository institution."  12 C.F.R.   330.3(i)(1) (1995).

Indeed, the regulations specify that, while ownership under state

law  is  one prerequisite  for  insurance  coverage, the  deposit

account records are controlling:

            Deposit  insurance  coverage  is  also  a
            function of the  deposit account  records

                               -8-

            of the insured depository institution, of
            recordkeeping requirements,  and of other
            provisions  of this  part, which,  in the
            interest  of  uniform national  rules for
            deposit    insurance     coverage,    are
            controlling  for purposes  of determining
            deposit insurance coverage.

12  C.F.R.     330.3(h)  (including  regulatory  exceptions   not

relevant here).  Reviewing  courts have treated these regulations

implementing  and interpreting  the statutory  provisions dealing

with deposit  insurance  with  some  deference.2    See  FDIC  v.                                                                       

Philadelphia Gear Corp., 476 U.S.  426, 437-38 (1986); see, e.g.,                                                                          

Raine v.  Reed, 14  F.3d 280, 283  (5th Cir. 1994);  Collins, 998                                                                      

F.2d at 555; cf. Chevron U.S.A. Inc. v. Natural Resources Defense                                                                           

Council,  Inc.,  467  U.S.  837,  842-44  (establishing  doctrine                        

treating  agency's  view of  a  statute with  deference  when the

statute is ambiguous), reh'g denied, 468 U.S. 1227 (1984).                                             

          Second, a series of  policy considerations underlie the

FDIC's practice of  relying on  the books and  records in  making

deposit  insurance  determinations.   In purchase  and assumption

transactions,3  the  FDIC  often  must  make  its  determinations
                                                  

2    The  Commissioner asks  us  to  note  that "deposit  account
records"  are defined  to  include certificates  of deposits  and
"other books and records of the insured depository institution, .
. . which relate to the insured depository  institution's deposit
taking  function."  12 C.F.R.    330.1(d) (1995).   This language
proves unhelpful, however,  since it is undisputed that there was
no Certificate among the  Bank's records at the time  of failure.
Had the  Certificate  remained in  the records,  this case  would
likely not have arisen.

3   A  purchase and  assumption transaction  occurs when,  in its
capacity  as  receiver, the  FDIC sells  a failed  bank's healthy
assets to a purchasing  bank in exchange for that  bank's promise
to pay the  depositors of  the failed bank.   FDIC-receiver  next
sells the  'bad'  assets  to itself  as  FDIC-corporate.    FDIC-

                               -9-

overnight.  See Raine, 14 F.3d at 283 ("We will not undermine the                               

speed and efficiency of bank  takeovers by imposing a requirement

upon the FDIC  to locate  and evaluate every  possible avenue  of

disputed  liability  in implementing  the  takeover  of a  failed

bank."); McCloud v. FDIC, 853 F.  Supp. 556, 559 (D. Mass. 1994).                                  

Making  quick determinations both facilitates the public's access

to its savings, Abdulla Fouad, 898 F.2d at 485, and maintains the                                       

going concern  value of the failed  bank, Raine, 14 F.3d  at 283.                                                         

Finally,  the  regulations  also avoid  fraudulent  increases  in

insurance coverage  by preventing the creation  of separate trust

accounts after default has occurred.  See Baskes v. FSLIC, 649 F.                                                                   

Supp. 1358, 1360 (N.D. Ill. 1986).

          Third,  there is "a well-grounded history of permitting

the FDIC  to  rely exclusively  on the  books and  records of  an

insolvent institution  in effectuating the takeover  of banks and

in  making the  many deposit  insurance determinations  which are

necessary to that task."  Raine, 14 F.3d at 283; see McCloud, 853                                                                      

F. Supp. at 559  (describing the "seemingly solid phalanx  of law

establishing the  conclusiveness of bank  account records");  see                                                                           

also  Abdulla Fouad,  898 F.2d  at 484  (providing statutory  and                             

regulatory basis  for FDIC reliance on  deposit account records).

                                                  

receiver  uses the money received  to pay the  purchasing bank to
make  up  the difference  between  what the  purchasing  bank was
willing to pay for  the good assets and what  it must pay out  to
the  failed  bank's depositors.    FDIC-corporate  then tries  to
collect  on  the  bad  assets.    This  purchase  and  assumption
generally  needs  to be  executed  with  speed, often  overnight.
Timberland  Design, Inc. v. First  Serv. Bank For  Sav., 932 F.2d                                                                 
46, 48 (1st Cir. 1991).

                               -10-

This  reliance on  the  books  and  records  draws  on  the  FDIC

regulations:    the  "FDIC's  longstanding  practice  of  looking

primarily  at  the  failed  bank's  deposit  account  records  in

determining   insurance   claims   is   clearly   a   permissible

interpretation of  [its] statutory mandates."   Collins, 998 F.3d                                                                 

at 554.  Indeed, the case law the FDIC cites states that a bank's

closing  is  "the seminal  point"  of  the FDIC's  determination.

"That event not  only trigger[s] the liquidation process,  but it

also  cast[s] in  stone the  relationship of  [plaintiff] to  the

bank."  FDIC  v. McKnight, 769 F.2d 658, 661 (1985), cert. denied                                                                           

sub  nom.,  All Souls  Episcopal Church  v.  FDIC, 475  U.S. 1010                                                           

(1986).

          In fact, the case law supports the FDIC's dependence on

the  books and records  of the Bank  at the time  of failure even

though  the   balance  was  a  result   of  alleged  unauthorized

activity.4  See Abdulla  Fouad, 898 F.2d at 484-85  (finding that                                        

plaintiff's  position that  the  FDIC should  have searched  bank

credit  files  and other  records  before  denying a  claim  goes

against  statutory and  regulatory authority);  Fletcher Village,                                                                          
                                                  

4  This circuit has not previously reached the issue of whether a
bank's correctly  recorded but unauthorized activity precludes an
insurance claim.  See  FDIC v. Fedders Air Conditioning,  35 F.3d                                                                 
18, 23 (1st  Cir. 1994).   Indeed,  in the  present case's  first
appearance  before  this  court,  we noted  we  had  not  decided
"whether or  to what  extent we would  be willing  to follow  the
Eighth Circuit's holding in In re Collins."  Villafa e-Neriz,  20                                                                      
F.3d  at  40 n.6.   In  affirming  the district  court's decision
today, we  adopt much of  the logic  of the Collins  decision, as                                                             
well as the  decisions of  the district  court for  Massachusetts
which have decided similar  cases.  See Fletcher Village,  864 F.                                                                  
Supp. at 265 (adopting the reasoning of Collins); McCloud, 853 F.                                                                   
Supp. at 559.

                               -11-

864 F. Supp. at  265 ("To hold the FDIC liable for the errors and

omissions  inherent in  almost  any  routine banking  transaction

would divert the  FDIC from  its core mission  of protecting  the

banking  system  from  an  ultimate  catastrophe.").    In  their

analysis, "[t]hese  cases reflect the severe  tension between two

values:   the  legitimate expectations  of the depositor  and the

regulator's desire to rely upon existing  records to expedite the

handling of bank emergencies."  Fedders Air Conditioning, 35 F.3d                                                                  

at 23.

          The Eighth Circuit's analysis in  the factually similar

In re Collins  proves illustrative.  In  that case, as here,  the                       

purchaser  of a  certificate  assigned the  proceeds  to a  third

party,  Collins.    The  proceeds,  however,  were  paid  to  the

purchaser's account,  and  the CD  account was  reflected on  the

institution's account  records as closed.   Collins, 998  F.2d at                                                             

552-53.  The trustee  for the bankrupt Collins sought  to recover

from  the institution for paying  out the CD  account despite the

assignment,   alleging  negligence   and   breach  of   contract.

Following the institution's insolvency, the FDIC in its corporate

capacity   denied  deposit  insurance,  and  the  trustee  sought

judicial review of its denial.  Id. at 553.  The court of appeals                                             

held that the  FDIC properly relied on  the books and records  of

the failed institution to deny deposit insurance, noting that the

institution's "mistaken payment  may not have affected  Collins's

rights  against  the  bank, but  it  did  extinguish the  insured

amount."   Id.  at 554.   In short,  it reasoned  that "[d]eposit                        

                               -12-

insurance  protects  depositors  from  loss  due  to  the  bank's

insolvency, not  loss from  the bank's  pre-insolvency mistakes."

Id. at 555.  We find the Eighth Circuit's reasoning convincing in             

the present case as well.

          The  Commissioner  seeks  to  differentiate  Collins on                                                                        

several bases.  First, he argues that the mistake  in Collins was                                                                       

a simple bank error,  id. at 552-53, while the  "cancellation" in                                   

the current case is not a  simple mistake, but rather was illegal

on its face.   We do not find the distinction  relevant.  In both

cases,  the  account was  cancelled  without regard  to  the CD's

assignment,  and  the  bank's   records  had  not  reflected  the

assignment.  Second, he finds it significant that the decision in

Collins  noted  not only  that  the account  in  controversy been                 

closed  at least  a  full  year  before  the  bank  was  declared

insolvent,  but also that the insolvent bank had not paid deposit

insurance premiums  for the account.   See id. at 553-54.   Here,                                                        

the Commissioner contests, Girod paid  deposit insurance premiums

on the CD account, which  was cancelled less than a  month before

the  bank was  taken  over  and a  few  days  after the  Treasury

Department of Puerto Rico conducted the investigation that led to

the  bank's  closing.    Again,  we  are  not  convinced  of  the

distinction.  In  Collins, the court's determination was based on                                   

the fact that the  records of a failed bank indicated the amounts

that  were insured, and the accounts for which the FDIC collected

deposit  insurance premiums.  The length of time that the account

was  closed, or the insurance  premiums unpaid, was  not the key:

                               -13-

the crucial factor was the reasonableness of the FDIC reliance on

the  records.  See id. at 554.  Collins noted that the CD account                                                 

was  not an  insured deposit  for which  premiums were  paid, and

found that Collins'  trustee had "confus[ed] the right to recover

from  the bank  with  the  right  to  withdraw  from  an  insured

account."  Id.                          

          Raine  v. Reed  offers another  example of  an analysis                                  

upholding  the FDIC's exclusive reliance on the books and records

of  a failed  institution.   Raine was  a victim  of unauthorized

withdrawals from automatic teller machines, who notified her bank

of the  withdrawals and  sought to  have her  account re-credited

pursuant to the Electronic Funds Transfer Act ("EFTA"), 15 U.S.C.

   1693-1693r.   Raine, 14  F.3d at 281-82.   At the time  of its                                

failure, the  bank had not provisionally  re-credited the account

pending  final   resolution  of  her  request,   as  required  by

regulations  implementing  the EFTA.    Raine  contended she  was

entitled  to deposit insurance on  the basis that  she should not

suffer because of the bank's mistakes.  Id. at 282.  However, the                                                     

Fifth Circuit found that

            [t]he  disputed  amount  was  simply  not
            credited   to   her   account   at   all,
            conditionally  or  otherwise.   Thus, the
            account  cannot  be  covered  by  deposit
            insurance  because  no  credit   for  the
            amounts  withdrawn  was  entered  on  the
            bank's books at the time of failure.

Id.  at 283.  The court relied  on the "well-grounded history" of             

allowing   the  FDIC   to  rely   exclusively  on   an  insolvent

institution's books and  records, even where the bank  itself has

                               -14-

committed a  mistake, as well as the  policy rationales discussed

above, in upholding the FDIC's use of the books and records.  Id.                                                                           

According to the court, "[t]he regulations are clear  and simple,

either the amount is credited to the account, in which case it is

covered by deposit insurance, or the  amount is not on the books,

in which case  it becomes a general liability of  the bank."  Id.                                                                           

at 284.

          The Commissioner offers no authority  contradicting our

analysis of the FDIC regulations, policy considerations, and case

law  supporting the use of  the failed bank's  records.  Instead,

the  Commissioner  counters  with  two arguments.      First,  he

contends that even if the FDIC relied on Girod's existing records

at the time of its failure in 1984, it should have concluded that

the   Certificate  had   not  been   properly  cancelled.     The

Commissioner  relies on 7 L.P.R.A.    3 (1981),  which states, in

pertinent part, that 

            [t]he  term  "deposit certificate"  shall
            mean any deposit which has been evidenced
            by   a   receipt  or   written  agreement
            containing  the  term   for  which   such
            deposit  has been  made  and  which  also
            requires presentation at the bank for its                                                               
            collection.                                

(emphasis added).   He concludes  from this  language that  since

Puerto  Rico law mandates that  the original of  a certificate of

deposit be presented to the bank for collection, an FDIC official

reviewing Girod's records  regarding the CD's "cancellation"  had

to be alerted that the Certificate was still  valid by the simple

fact that the original was not contained in the customer profile.

                               -15-

By failing to do so, the Commissioner contends, the FDIC did  not

give  the  proper  weight  to these  Puerto  Rican  recordkeeping

requirements.

          We  do not find this argument convincing.  On its face,

the  statute  sets  out  the requirements  for  presentation  for

collection, which  is not at  issue here.  We  are concerned with

what records  should remain in the  bank after a  setoff, and the

language is silent on this point.  The sole case the Commissioner

cites to support its argument that the statute should be  read to

require  that the original of a certificate must be presented for

setoff, Walla Corp.  v. Banco Commercial de  Mayaguez, 114 D.P.R.                                                               

216  (1983)   (holding  that  where   bank  set  off   loan  with

certificates  effectively  assigned to  third  party, bank  could

compensate the CDs with the  loans debtor had with it), does  not

mention  the statute.  We could find no case law on point.  Given

the plain meaning of the statute,  and the absence of evidence to

support  the Commissioner's reading of the statute, we reject his

position. 

          The  Commissioner's  second   argument  relies  on   an

exception to  the general rule that the  records of a failed Bank

are  conclusive.  That exception states  that "records that would

otherwise be conclusive evidence  may be attacked as fraudulent."

Collins, 998  F.2d at  555; see, e.g.,  Jones v.  FDIC, 748  F.2d                                                                

1400, 1405 (10th  Cir. 1984); McCloud, 853 F. Supp.  at 559.  The                                               

Commissioner argues to  this court  that there was  fraud in  the

transaction  assigning  the  Certificate,  and  therefore  he  is

                               -16-

entitled to attack the conclusiveness of Girod's records.

          However,  we  refuse  to  consider  the  Commissioner's

argument, since he  raises it for the first time  on appeal.5  It

is well established that this court will not consider an argument

presented for  the first time on  appeal.  See Clauson  v. Smith,                                                                          

823  F.2d 660,  666 (1st  Cir. 1987)  (collecting cases).   While

exceptions to this  rule exist, they  apply only "'in  horrendous

cases  where  a  gross  miscarriage  of  justice  would  occur,'"

Johnston v. Holiday Inns, Inc., 595 F.2d 890, 894 (1st Cir. 1979)                                        

(quoting  Newark Morning  Ledger Co. v.  United States,  539 F.2d                                                                

929, 932 (3d Cir. 1976)), and this is not  such a case.  That the

Commissioner's argument involves no new facts, just a new theory,

is irrelevant.   See Ondine  Shipping Corp. v.  Cataldo, 24  F.3d                                                                 

353, 355 (1st Cir. 1994) ("This assertion is neither original nor

persuasive.").

          Therefore,  since   we  find  that  under   either  the
                                                  

5   We note in passing that  the Commissioner argues on the basis
of fraud in  the transaction underlying the  records, since there
is  no  question  that  the  records  themselves  were  accurate.
However,  the  cases the  Commissioner seeks  to  rely on  in his
argument -- McCloud, Abdulla Fouad, and Collins -- all discuss an                                                         
exemption based on fraud in a bank's recordkeeping.  See Collins,                                                                          
998 F.2d at 556  (noting that there was "no  allegation of fraud"
where the bank's records "accurately reflected payout of $100,000
to  the  wrong  party.");  Abdulla  Fouad,  898  F.2d  at  485-86                                                   
(refusing to extend  exception to include  proof directed to  the
deposit  account  recording);  McCloud,   853  F.  Supp.  at  560                                                
(concluding  that, where there  was evidence that  the records of
deposits were altered during the course of fraudulent conduct  by
the bank president, "it was arbitrary, capricious and contrary to
law for the agency to consider the customer profile as of the day
of  the bank's default as conclusive"  (footnote omitted)).  Thus
we question whether the Commissioner would have met with success,
even if he had both  raised this argument in the court  below and
demonstrated that there was fraud in the transaction.

                               -17-

arbitrary  and capricious  standard or a  more demanding  de novo                                                                           

review the FDIC was correct in relying solely on Girod's records,

and  reject the  Commissioner's  arguments based  on Puerto  Rico

banking  law and fraud, we affirm the district court's holding on

these issues.

           C.  Application of the McCarran-Ferguson Act                     C.  Application of the McCarran-Ferguson Act                                                                 

          The Commissioner  raises one final argument against the

FDIC's  insurance determinations,  based on  Section 2(b)  of the

McCarran-Ferguson  Act.  59 Stat.  33, 34 (1945),  as amended, 15

U.S.C.   1012(b).  Section 2(b) states, in pertinent part:

            No Act of Congress shall be  construed to
            invalidate, impair, or supersede  any law
            enacted by  any State for  the purpose of
            regulating the business of  insurance, or
            which  imposes  a fee  or  tax upon  such
            business,  unless  such Act  specifically
            relates  to  the  business  of  insurance
            . . . .

15  U.S.C.    1012(b) (1994).   This  statute creates "a  form of

inverse  preemption,  letting  state  law  prevail  over  general

federal rules--those  that do  not 'specifically relate[]  to the

business of insurance.'"  NAACP v. American Family Mut. Ins. Co.,                                                                          

978  F.2d 287, 293  (7th Cir. 1992), cert.  denied,     U.S.    ,                                                            

113  S. Ct. 2335, 124 L.Ed.2d 247 (1993); see United States Dep't                                                                           

of the  Treasury v. Fabe,      U.S.     ,    , 113  S. Ct.  2202,                                  

2211, 124  L.Ed.2d 449 (1993)  (noting that the  Act "transformed

the  legal   landscape  by   overturning  the  normal   rules  of

preemption.").   As the Supreme Court  has explained, "'Congress'

purpose  was broadly to give  support to the  existing and future

state  systems   for  regulating  and  taxing   the  business  of

                               -18-

insurance.'"  Fabe, 113  S. Ct. at 2207 (quoting  Prudential Ins.                                                                           

Co.  v. Benjamin, 328 U.S. 408, 429  (1946)).  Indeed, the quoted                          

language  of Section 2(b) "impos[es] what is, in effect, a clear-

statement rule, a rule  that state laws enacted 'for  the purpose

of  regulating  the  business  of  insurance'  do  not  yield  to

conflicting   federal   statutes   unless   a   federal   statute

specifically requires otherwise."  Id. at 2211.                                                

          The Commissioner seizes on Section 2(b) to contend that

the district  court's decision  "renders meaningless"  the Puerto

Rico Insurance Code provisions requiring that insurance companies

make  statutory deposits.  See  26 L.P.R.A.     801-809.  Because                                        

Guaranty assigned the CD  to the Commissioner in order  to comply

with this  statute, the Commissioner concludes  that the district

court's  decision  upholding  the   FDIC's  refusal  of   deposit

insurance  impairs the  Commissioner's  ability  to regulate  the

business  of insurance  in  Puerto Rico,  and therefore  violates

Section  2(b).     The  decision,   the  Commissioner   contends,

particularly impairs "obtaining  eligible deposits from insurance

companies to comply with the statutory deposit requirement of the

Insurance Code, whose ultimate aim is to protect policyholders in

case of the insurer's insolvency."  (Appellant's Brief, at 20).

          The Supreme Court  has set out the factors required for

a  federal  statute to  fall  within  the McCarran-Ferguson  Act.

First,  the  federal   statute  must   "invalidate,  impair,   or

supersede" the state act.   Second, the federal statute  must not

"specifically relat[e]  to the business of  insurance."  Finally,

                               -19-

the  state law  must  have  been  enacted  "for  the  purpose  of

regulating the business of insurance."  Fabe, 113 S. Ct. at 2208.                                                      

We need go  no further than the first factor  in our analysis, as

the Commissioner's  argument that  the application of  the Puerto

Rico Insurance Code is impaired fails.

          The  Supreme  Court  faced  the  question  of  when  an

"impairment" occurs in SEC  v. National Sec., Inc., 393  U.S. 453                                                            

(1969).  In that case, the SEC sought to unwind the merger of two

insurance  companies which  had  been approved  by  the state  of

Arizona, on the basis that the merger was obtained through use of

fraudulent misrepresentations.    Arizona argued  that the  SEC's

action  would violate  the  McCarran-Ferguson Act.   The  Supreme

Court,  finding  that the  essential  question  was "whether  the

McCarran-Ferguson  Act  bars a  federal  remedy  which affects  a

matter  subject  to  state  insurance regulation,"  id.  at  462,                                                                 

disagreed.  

            The gravamen  of  the complaint  was  the
            misrepresentation,  not the merger. . . .
            Nevertheless, [the state] contend[s] that
            any  attempt to  interfere with  a merger
            approved  by  state  insurance  officials
            would "invalidate,  impair, or supersede"
            the  state  insurance laws  .  .  . .  We
            cannot    accept   this    overly   broad
            restriction on federal power.
               It  is clear that  any "impairment" in
            this case is a most indirect one.

Id. at  462-63.  The courts have relied on this logic to conclude             

that   "application  of a  federal law  [will] be  precluded only

where  the federal  law expressly  prohibit[s] acts  permitted by

state law, or vice  versa."  Merchants Home Delivery  Serv., Inc.                                                                           

                               -20-

v. Frank  B. Hall  &amp;  Co., 50  F.3d 1486,  1492  (9th Cir.  1995)                                   

(holding that application of a  federal law which prohibited acts

also  prohibited  by  state  insurance law  did  not  invalidate,

impair,   or  supersede  state   law,  despite   their  differing

remedies),  cert. denied  sub nom.,  Prometheus Funding  Corp. v.                                                                        

Merchants Home Delivery  Serv., Inc.,      U.S.    ,  116 S.  Ct.                                              

418,     L.Ed.2d      (1995); see American Family Mut.  Ins. Co.,                                                                          

978  F.2d  at 296-97  (drawing  on  analogies  to the  principles

governing federal preemption of state law).  

          Application  of this  "direct  conflict"  test  quickly

defeats the  Commissioner's argument.   In short, nothing  in the

district  court opinion -- or the FDIC regulations -- impairs the

Commissioner's authority  or  ability  to  obtain  deposits  from

insurance  companies  to  comply   with  the  statutory   deposit

requirement.   The  opinion and  regulations merely set  out what

records the FDIC may rely on  in making insurance determinations.

The  Commissioner's loss is the product of events, not a conflict

between federal and Commonwealth  statutes.  In the absence  of a

direct  prohibition, we  refuse to  hold that  there has  been an

impairment merely because  in this circumstance a  CD assigned to

the  Commissioner was  set  off against  the insurance  company's

indebtedness.  Cf. Merchants Home Delivery, 50 F.3d at 1492 ("The                                                    

language of   2(b) is inconsistent with a congressional intent to

allow states to preempt the field of insurance regulation.").  

                            CONCLUSION                                      CONCLUSION

          For the reasons stated above, we affirm.                                                     affirm.                                                           

                               -21-
