The Federal Deposit Insurance Corp. has approved a Statement of Policy on the Acquisition of Failed Insured Depository Institutions that provides guidance to private capital investors interested in acquiring or investing in the deposit liabilities of failed banks or thrifts. The final statement includes a number of changes from the proposed statement issued in July, such as refining the description of the types of investors covered, changing the capital standard to one that is intended to be a better measure of the capital available to absorb losses and clarifying the circumstances in which the cross support obligation would apply. The statement is intended to open the door to additional sources of the capital needed to support the industry as the agency is called upon to take over more institutions.
The Statement of Policy describes the required qualifications for investors in companies that are proposing to, directly or indirectly, assume deposit liabilities or assets from the resolution of a failed insured depository institution, including applicants for insurance in the case of de novo institutions formed for that purpose. It does not apply to: investors in an institution that has maintained a composite CAMELS rating of 1 or 2 for at least the past seven consecutive years; investors who are partnering with existing bank or thrift holding companies that will have a “strong majority interest” in the resulting institution and that have a record of successful operation of banks or thrifts; or investors who will have no more than 5 percent of the voting power in the resulting institution, as long as these minority owners are not acting in concert.
The Statement of Policy imposes these obligations:
- The resulting institution will be required to maintain a ratio of Tier 1 common equity to total assets of at least 10 percent for at least three years after the acquisition and to remain “well capitalized” for the duration of the investors' ownership.
- If one or more investors owns 80 percent or more of two or more banks or thrifts, the stock of the commonly owned banks or thrifts is to be pledged to the FDIC. If any one of those institutions fails, the FDIC may exercise those pledges to the extent necessary to recoup any losses incurred by the agency as a result of the failure.
- Any extension of credit to an investor, related investment fund or affiliate by an insured depository institution acquired by an investor will be prohibited.
- An investor employing an ownership structure utilizing entities that are domiciled in bank secrecy jurisdictions will not be eligible to own a direct or indirect interest in an insured depository institution unless the investor meets strict requirements that are intended to ensure the ability of the U.S. government to supervise the institution.
- Investors (other than some mutual funds) are prohibited from selling or otherwise transferring their securities for three years after the acquisition without the FDIC’s prior approval.
- Complex and functionally opaque ownership structures in which the beneficial ownership is difficult to ascertain with certainty, the responsible parties for making decisions are not clearly identified and ownership and control are separated are prohibited.
- Investors that directly or indirectly hold 10 percent or more of the equity of a bank or thrift in receivership will not be allowed to bid to invest in the deposit liabilities or assets of that institution.
- Investors will be expected to submit to the FDIC information about themselves and all entities in the ownership chain, including information on the size of the capital fund or funds, their diversification, their return profile, their marketing documents, their management team and their business model.