Final Statement of Policy on Qualifications for Failed Bank Acquisitions

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Federal Register / Vol. 74, No. 169 / Wednesday, September 2, 2009 / Notices

Dated: August 20, 2009.
Andrew M. Gaydosh,
Acting Regional Administrator, Region 8.
[FR Doc. E9–20801 Filed 9–1–09; 8:45 am]

FEDERAL DEPOSIT INSURANCE
CORPORATION

BILLING CODE 6560–50–P

Final Statement of Policy on
Qualifications for Failed Bank
Acquisitions

RIN 3064–AD47

AGENCY: Federal Deposit Insurance
Corporation (FDIC).
ACTION: Final statement of policy.

FARM CREDIT ADMINISTRATION
Farm Credit Administration Board;
Regular Meeting
Farm Credit Administration.
SUMMARY: Notice is hereby given,
pursuant to the Government in the
Sunshine Act (5 U.S.C. 552b(e)(3)), of
the regular meeting of the Farm Credit
Administration Board (Board).
Date and Time: The regular meeting
of the Board will be held at the offices
of the Farm Credit Administration in
McLean, Virginia, on September 10,
2009, from 9 a.m. until such time as the
Board concludes its business.
FOR FURTHER INFORMATION CONTACT:
Roland E. Smith, Secretary to the Farm
Credit Administration Board, (703) 883–
4009, TTY (703) 883–4056.
ADDRESSES: Farm Credit
Administration, 1501 Farm Credit Drive,
McLean, Virginia 22102–5090.
SUPPLEMENTARY INFORMATION: Parts of
this meeting of the Board will be open
to the public (limited space available),
and parts will be closed to the public.
In order to increase the accessibility to
Board meetings, persons requiring
assistance should make arrangements in
advance. The matters to be considered
at the meeting are:
AGENCY:

Open Session
A. Approval of Minutes
• August 13, 2009.
B. New Business
• Fall 2009 Abstract of the Unified
Agenda of Federal Regulatory and
Deregulatory Actions and Fall 2009
Regulatory Performance Plan.
Closed Session*
A. Reports
• Office of Secondary Market
Oversight Quarterly Report.
B. New Business

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• Supervisory Actions.
Dated: August 28, 2009.
Roland E. Smith,
Secretary, Farm Credit Administration Board.

*Session Closed—Exempt pursuant to
5 U.S.C. 552b(c)(8) and (9).

SUMMARY: The FDIC is issuing a Final
Statement of Policy on Qualifications
for Failed Bank Acquisitions (Final
Statement). This Final Statement
provides guidance to private capital
investors interested in acquiring or
investing in failed insured depository
institutions regarding the terms and
conditions for such investments or
acquisitions.
DATES: Effective Date: August 26, 2009.
FOR FURTHER INFORMATION CONTACT:
Catherine Topping, Counsel, Legal
Division, (202) 898–3975 or
[email protected], Charles A. Fulton,
Counsel, Legal Division, (703) 562–2424
or [email protected], Lisa Arquette,
Associate Director, (202) 898–8633 or
[email protected], or Mindy West,
Chief, Policy and Program Development,
Division of Supervision and Consumer
Protection, (202) 898–7221 or
[email protected].
SUPPLEMENTARY INFORMATION:

I. Background
On July 9, 2009, the FDIC published
for comment a Proposed Statement of
Policy on Qualifications for Failed Bank
Acquisitions (Proposed Policy
Statement) with a 30-day comment
period to provide guidance to private
capital investors interested in acquiring
the deposit liabilities, or both such
liabilities and assets, of failed insured
depository institutions regarding the
terms and conditions for such
investments or acquisitions.1 After
carefully reviewing and considering all
comments, the FDIC has adopted certain
revisions and clarifications to the
Proposed Policy Statement (as discussed
in Part III) in the Final Statement.
The FDIC is aware of the need for
additional capital in the banking system
and the contribution that private equity
capital could make to meeting this need
provided this contribution is consistent
with basic concepts applicable to the
ownership of insured depository
institutions that are contained in the
established banking laws and
regulations. The preamble to the
Proposed Policy Statement explained

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that in view of the increased number of
bank and thrift failures and the increase
in interest by private capital investors in
acquiring insured depository
institutions in receivership, the FDIC
determined to issue, in proposed form,
guidance to potential acquirers. In
developing the Proposed Policy
Statement, the FDIC sought to establish
the proper balance in a number of
important areas including the level of
capital required for these de novo
institutions and whether these owners
would be a source of strength to the
banks and thrifts in which they have
invested. The FDIC also considered the
important policy issues raised by the
structure of investments in insured
depository institutions, particularly
with respect to their compliance with
the requirements applied by the FDIC in
its decision on the granting of deposit
insurance and with the statutes and
regulations aimed at assuring the safety
and soundness of insured depository
institutions and protecting the Deposit
Insurance Fund (‘‘DIF’’).
In the Introduction to the Proposed
Policy Statement, the FDIC set forth its
reasons for adopting a policy on private
capital participating in the acquisition
of or investment in failed insured
depository institutions. In part, the
Introduction stated:
Capital investments by individuals and
limited liability companies acting through
holding companies operating within a well
developed prudential framework has long
been the dominant form of ownership of
insured depository institutions. From the
perspective of the FDIC’s interest as insurer
and supervisor of insured depository
institutions, this framework has included, in
particular, measures aimed at maintaining
well capitalized bank and thrift institutions,
support for these banks when they face
difficulties, and protections against insider
transactions. The ability of the owners to
provide financial support to depository
institutions with adequate capital and
management expertise are essential
safeguards. These safeguards are particularly
appropriate for owners of insured depository
institutions given the important benefits
conferred on depository institutions by
deposit insurance.
* * * The FDIC is also aware that new
banks, regardless of their investor
composition, pose an elevated risk to the
deposit insurance fund since they generally
lack a core base of business, a proven track
record in the banking industry, and are
vulnerable to significant losses in the early
years of incorporation.
The FDIC is of the view that private capital
participation in the acquisition of the deposit
liabilities, or both such liabilities and assets,
from a failed depository institution in
receivership should be consistent with the
foregoing basic elements of insured
depository institution ownership. * * *

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* * * The FDIC is particularly concerned
that owners of banks and thrifts, whether
they are individuals, partnerships, limited
liability companies, or corporations, accept
the responsibility to serve as responsible
custodians of the public interest that is
inherent in insured depository institutions
and will devote the efforts to assuring that
banks or thrifts acquired with assistance from
the deposit insurance fund do not return to
the category of troubled institutions.

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These same reasons underlie the need
to adopt the Final Statement described
below.
The Proposed Policy Statement
described the terms and conditions that
private capital investors would be
expected to satisfy to obtain bidding
eligibility for a proposed acquisition
structure. These standards would apply
to (1) private capital investors in certain
companies that sought to assume
deposit liabilities or both such deposit
liabilities and assets from a failed
insured depository institution and (2)
private capital investors involved in
applications for deposit insurance in
conjunction with de novo charters
issued in connection with the resolution
of failed insured depository institutions
(hereinafter ‘‘Investors’’). As more fully
summarized below, the Proposed Policy
Statement provided, among other
measures, standards for capital support
of an acquired depository institution; an
agreement to a cross guarantee over
substantially commonly-owned
depository institutions; limits on
transactions with affiliates; maintenance
of continuity of ownership; and
avoidance of secrecy law jurisdictions
as investment channels, absent
consolidated home country supervision.
Capital Commitment
The Proposed Policy Statement
required private investors to agree to
cause an insured depository institution
acquiring a failed bank’s deposit
liabilities, or both such deposit
liabilities and assets, to have a Tier 1
leverage ratio of 15 percent for the first
three years of operation, subject to
further extensions by the FDIC.
Thereafter, such investors would be
required to cause the insured depository
institution’s capital to remain at ‘‘well
capitalized’’ levels for the duration of
their ownership. The FDIC explained
that failing to meet those standards
could cause the insured depository
institution to be considered
‘‘undercapitalized’’ for purposes of
Prompt Corrective Action and other
supervisory measures.
Source of Strength
The FDIC would require Investors
covered by its Proposed Policy
Statement to agree to serve as a source

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of strength for subsidiary depository
institutions. As necessary, the Proposed
Policy Statement required depository
institution holding companies in which
such Investors held interests to sell
equity or to engage in capital qualifying
borrowing.

Disclosures
The Proposed Policy Statement
provided for disclosures of certain
specified information (and other non
specified information deemed necessary
by the FDIC) from Investors and other
entities in their ownership chains.

Cross Guarantees

II. Overview of the Comments
The FDIC requested public comment
on all aspects of the Proposed Policy
Statement and set forth nine specific
questions for consideration by
commenters. The issues presented by
the specific questions included the
definition of the ‘‘investors’’ to whom
the policies would apply; the bidding
eligibility of so-called ‘‘silo’’ structures;
the appropriate capital levels for failed
insured depository institutions acquired
by private capital investors; whether
source of strength commitments should
be required and the scope of such
commitments; whether cross guarantee
commitments should be required and
the scope of such commitments; the
bidding eligibility of entities established
in bank secrecy jurisdictions; whether a
three-year continuity of ownership rule
is the appropriate period of time; the
bidding eligibility of investors that
directly or indirectly hold 10 percent or
more of the equity of a bank or thrift in
receivership; and whether the proposed
limitations should be lifted after a
certain number of years of successful
operation of a bank or thrift holding
company.
The FDIC received 61 individual
comment letters.2 The comment letters
were sent by private investment firms,
investment advisory firms, law firms,
insured depository institutions,
advocacy organizations, financial
services trade associations, 4 United
States Senators, a labor union, research
organizations, academics, and 6
individuals. Most of the commenters
were private capital firms or their
representatives that would be affected
by the Proposed Policy Statement. The
FDIC also received 3,190 form letter
comments in support of the Proposed
Policy Statement.
Many commenters expressed the
general view that limitations and
restrictions contained in the Proposed
Policy Statement would deter many
private capital investors and inhibit the
flow of capital into failed banks,
resulting in greater costs to the DIF. On
the other hand, some commenters stated
that they did not have confidence in the
motives of private equity investors
because of their short-term investment
objectives and limited regulatory

If Investors had an individual or
collective investment that constituted a
majority interest in more than one
insured depository institution, the
Proposed Policy Statement required
them to pledge to the FDIC their interest
in each institution to cover losses to the
Deposit Insurance Fund caused by the
failure of such insured depository
institution(s) or by the FDIC’s provision
of assistance to such institutions.
Transactions With Affiliates
The Proposed Policy Statement
prohibited extensions of credit to an
Investor by an insured depository
institution acquired or controlled by the
Investor. According to the Proposed
Policy Statement, this prohibition also
applied to related investment funds, any
affiliates (that is, any company in which
an Investor owns 10 percent or more),
and to any companies in which the
Investor or its affiliates invested.
Secrecy Law Jurisdictions
The Proposed Policy Statement
prohibited investors in entities
domiciled in bank secrecy jurisdictions
from making a direct or indirect
investment in an insured depository
institution unless the investors are
subsidiaries of companies subject to
comprehensive consolidated
supervision, as recognized by the Board
of Governors of the Federal Reserve
System. Among other things, such
investors also would be required to
agree to provide information to their
primary Federal regulator, abide by
statutes and regulations administered by
U.S. banking agencies, consent to U.S.
jurisdiction, and cooperate with the
FDIC.
Continuity of Ownership
Absent the FDIC’s prior approval, the
Proposed Policy Statement would
prohibit covered Investors from selling
or transferring securities of their holding
company or insured depository
institution for three years following
acquisition. The FDIC indicated that it
did not expect to approve such transfers
within the initial three-year period
unless the buyer agreed to be bound by
the same conditions of the Proposed
Policy Statement that were applicable to
the Investor.

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2 See http://www.fdic.gov/regulations/laws/
federal/2009/09comAD47.html.

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oversight. These commenters argued
that private capital firms should be
subject to strict regulation or excluded
altogether from participating in the
ownership of insured depository
institutions. The form letter comments
strongly supported the FDIC’s Proposed
Policy Statement on grounds that
private equity firms engage in
inherently risky behavior in order to
extract large profits in short periods of
time.
Three specific areas of the Proposed
Policy Statement—the 15 percent Tier 1
leverage ratio, the source of strength
commitment, and the cross guarantee
provision—generated considerable
comment. Commenters opposed to the
15 percent Tier 1 leverage ratio argued
that setting the required initial
capitalization level at such a high level
would place private capital investors at
a competitive disadvantage relative to
strategic acquirers, make it difficult for
private capital investors to realize a
reasonable return on investment, and
encourage risky post-acquisition
investments and business strategies.
These commenters noted that the 15
percent Tier 1 leverage level was three
times the high-end range for ‘‘wellcapitalized’’ depository institutions and
double the industry average. With
respect to source of strength
commitments and cross guarantees,
these commenters were opposed to any
direct financial commitment or support
obligations beyond an investor’s initial
contribution. The commenters argued
that the imposition of source of strength
commitments would introduce
substantial uncertainty for investors and
potentially expose them to unlimited
liability. Commenters also stated that
the cross guarantee requirement would
deter private capital investment in
failed insured depository institutions
because private capital investors in
unrelated banks would not agree to a
cross guarantee commitment that places
their legally separate investments at
risk. Lastly, the commenters contended
that source of strength and cross
guarantee commitments were generally
prohibited by private equity fund
agreements. A summary of the
comments by issue follows.

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Summary of the Comments by Issue
1. Bidding Eligibility of ‘‘Silo’’
Structures
In the Proposed Policy Statement, the
FDIC noted that, because of their often
complex and opaque organizational
arrangements, so-called ‘‘silo’’
ownership structures would be
considered inappropriate vehicles for
acquiring insured depository

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institutions. Some commenters,
including a few private equity firms,
endorsed the proposed prohibition of
‘‘silo’’ structures, citing the FDIC’s need
to ascertain beneficial ownership,
clearly identify the parties responsible
for making management decisions, and
ensure that ownership and control are
not separated.
Other commenters stated that they
recognized the FDIC’s need for
transparency, but opposed a blanket
prohibition of ‘‘silo’’ structures as
acquisition vehicles. These commenters
believe that the FDIC would eliminate
many otherwise suitable investors who
would be willing to provide full
disclosures with respect to beneficial
ownership, decision making
responsibility, and ownership and
control issues, and to provide additional
disclosures as necessary—even
submitting to regulation as a bank
holding company under the Bank
Holding Company Act—in order to be
eligible to bid on failed insured
depository institutions. They did not
view an absolute prohibition of ‘‘silo’’
structures as necessary for the
advancement of the FDIC’s important
interest in transparency. Some private
investors involved in ‘‘silo’’
organizations indicated that they had
been part of acquisitions approved
pursuant to existing legal standards
through the application processes of the
Office of Thrift Supervision and the
Board of Governors of the Federal
Reserve System.
One group of private equity investors
noted that separation of ownership and
control is characteristic of many
categories of institutional investors,
including mutual funds, pension plans,
and endowments, and argued that
bifurcated ownership and control is not
a reason to disqualify a potential bidder
for a failed bank or thrift. Other
commenters, including several law
firms, argued against the categorical
prohibition in part because ‘‘there is no
agreed-upon definition in the private
equity industry or elsewhere on what
constitutes a ‘silo’ structure.’’
2. Definition of ‘‘Investors’’/
Applicability of Standards
The limitations and restrictions
contained in the Proposed Policy
Statement would apply to more than de
minimis investments by: ‘‘(a) private
capital investors in a company (other
than a bank or thrift holding company
that has come into existence or has been
acquired by an Investor at least 3 years
prior to the date of this policy
statement), that is proposing to directly
or indirectly assume deposit liabilities,
or such liabilities and assets, from a

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failed insured depository institution in
receivership, and to (b) applicants for
insurance in the case of de novo
charters issued in connection with the
resolution of failed insured depository
institutions.’’ The FDIC asked
commenters whether some other
definition of applicability was more
appropriate.
Many of the comments received from
representatives of private investment
firms indicated that the limitations and
restrictions contained in the Proposed
Policy Statement should be imposed
only when an investor or group of
investors would exercise control over
the failed institution. Some proposed
that investors owning 9.9 percent or less
of a failed institution should not be
subject to the limitations contained in
the Proposed Policy Statement. Other
private equity firms argued that private
investment funds should not be treated
differently from other passive investors.
Some commenters argued that the
proposed definition of ‘‘investor’’ is
ambiguous and that a clearer definition
of applicability is needed. These
commenters, which include both law
firms and representatives of private
equity firms, believed that the scope of
the definition was unclear because the
term ‘‘private capital investor’’ does not
have any generally understood meaning
and the Proposed Policy Statement fails
to define it. They noted that if the
Proposed Policy Statement primarily is
concerned with private equity funds,
the FDIC should clarify that fact.
Several private investment firm
commenters disagreed with that part of
the definition that would make the
Proposed Policy Statement applicable to
private investors in bank or thrift
holding companies that came into
existence or were acquired by the
investor within the three years prior to
the date of the Proposed Policy
Statement. Some of these commenters
proposed that the three-year period be
measured prior to the date of the bid for
a failed depository institution rather
than from the date of issuance of the
Proposed Policy Statement. A number of
commenters mistakenly asserted that
this provision is retroactive in nature
and viewed it as arbitrary.
One commenter looked to the
definition of control contained in the
Bank Holding Company Act and
Regulation Y to determine to whom the
Proposed Policy Statement might apply.
Using that definition, the commenter
suggested that the Proposed Policy
Statement should apply to private
capital investors and applicants for
insurance in cases of de novo charters
who seek to act as a controlling
company or influence over a failed

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insured depository institution in
receivership.
3. Capital Commitment
Several commenters supported a Tier
1 leverage ratio requirement of at least
15 percent (as provided in the Proposed
Policy Statement) because of the higher
risk profile of the failed institutions
investors would be buying, the higher
risk appetite of private equity investors,
and the financial challenges facing
banking institutions today. Another
commenter encouraged the FDIC to
maintain a Tier 1 leverage ratio
requirement of at least 12 percent.
A majority of the commenters
objected to the proposed capital
requirements, arguing that such
requirements would; disadvantage
private capital firms relative to other
bidders and publicly-owned
institutions; discourage private capital
investment in failed institutions; result
in less competitive bids for failing
institutions from private equity
investors; and create a separate Prompt
Corrective Action framework for
institutions acquired by private capital
investors.
Several commenters in opposition to
the proposal expressed concern that the
capital requirement would result in
excessive risk-taking to realize a
sufficient return on the investment, with
one commenter noting that the proposed
capital requirement also could hinder
an institution’s ability to lend. A
number of commenters opposed the
proposed capital requirement because
they believe it disregards other factors
that are determinative of an institution’s
financial condition, such as the
proposed business plan, the risk of onbalance sheet assets, and the
qualifications of the management team.
Comments varied with respect to
recommendations on an appropriate
capital requirement. One commenter
was of the view that a 7.5 percent Tier
1 leverage ratio is appropriate because
the assets of a resolved bank are
marked-to-market and the riskiest assets
are subject to loss-sharing agreements
with the FDIC. Another commenter
supported an 8 percent Tier 1 leverage
ratio requirement, as well as a 15
percent total risk-based capital ratio or
a lower capital requirement for assets
covered in loss-sharing agreements.
Another commenter proposed a 10
percent Tier 1 leverage ratio or,
alternatively, an incremental reduction
in the 15 percent requirement to
between 7 and 8 percent over the first
three years following the acquisition,
while other commenters suggested
various ranges between 5 and 10
percent, with 8 percent being the most

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frequently suggested level. Several other
commenters supported a case-by-case
approach based on the risk profile of the
institution.
One commenter took the position that
the capital requirement should be based
on the Tier 1 risk-based capital ratio
rather than the Tier 1 leverage ratio to
avoid penalizing institutions holding
low-risk, highly-liquid assets. Under
this proposal, private investment firms
would have to meet a ‘‘common’’ Tier
1 risk-based capital ratio requirement of
8 percent. Two commenters
recommended moving to a tangible
common equity measure, with a
minimum requirement of 6 percent.
4. Source of Strength
Four commenters generally supported
the proposed source of strength
requirement, with one supporting an
enhanced source of strength
requirement that explicitly requires
individual private capital investors or
beneficial fund managers to ensure the
financial strength of the depository
institution through direct capital
injections. Another commenter
expressed limited support for the source
of strength requirement to the extent
that it would require investors to serve
as a source of managerial strength for
the institution.
Many commenters expressed general
opposition to the proposed source of
strength requirement. Specifically,
seven commenters criticized the
proposal as potentially creating
unlimited liability for private capital
investors. Although the Proposed Policy
Statement limited the source of strength
requirement to raising new capital by
selling new shares or engaging in capital
qualifying borrowing by the bank’s or
thrift’s holding company, several
commenters indicated that the proposed
source of strength requirement is not
feasible because, as a practical matter,
many private capital investors are
limited by the terms of their fund
documents from providing capital
support or making follow-on
investments in their portfolio
companies. Several other commenters
indicated that the proposed source of
strength requirement would likely
discourage investments by private
capital investors in failing institutions,
with a number of them viewing the
requirement as unnecessary given the
FRB and OTS holding company
requirements. Two commenters viewed
the source of strength requirement as
altogether unnecessary because the
interests of private capital investors are
aligned with those of the insured
depository institutions in their
investment portfolios, and that

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sufficient financial incentives exist for
investors to protect such investments.
Other commenters noted that the source
of strength requirement for bank and
savings and loan holding companies
was not effective in preventing bank
failures, and another commenter
objected to making individual investors
responsible for the actions of the
institution, absent the ability to
influence policies or decision-making.
At least ten commenters supported
the imposition of a ‘‘control’’ threshold
for purposes of the source of strength
requirement, and another commenter
suggested that parties with ‘‘substantial
ownership stakes’’ and board
representation should either be required
to provide capital under source of
strength commitments or not use their
limited corporate governance rights to
block capital from other sources. One
commenter expressed concern that the
imposition of a source of strength
requirement on a non-controlling
investor could be perceived by the FRB
and OTS as an indication of control,
potentially making the investor subject
to holding company supervision.
A number of these commenters
presented alternatives to the source of
strength requirement. These
commenters suggested that a more
appropriate alternative would be for
regulators to obtain commitments from
investors that, under certain
circumstances, they will not use
whatever limited corporate governance
rights they have to block capital raising
efforts. One commenter suggested an
alternative under which the investor is
required to hold as a reserve at the
partnership level a percentage of the
transaction value for future capital
investment in the bank. Still another
commenter proposed making private
equity investors capitalize failed
insured depository institutions with all
common stock equity, leaving available
the option of issuing hybrid securities
and thereby providing financial
flexibility. One more commenter
supported applying the source of
strength requirement selectively, and
only to the banking silo of a private
fund.
5. Cross Guarantees
Ten commenters supported the cross
guarantee provision as a means of
limiting risk to the DIF, noting that,
without it, private capital investors
would have no exposure beyond their
initial investment in the failed bank or
thrift if the institution later experienced
difficulties and the investors owned
another bank or thrift.
In contrast, a majority of the
commenters opposed the proposed cross

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guarantee provision in that it would
deter private capital investment in
failed insured depository institutions;
place the other investments of private
capital investors at risk; result in less
competitive bids for failing institutions;
and inhibit a private equity manager
from investing in two different
depository institutions through two
different funds with two distinct groups
of private capital investors.
Other commenters objected to
imposing a cross guarantee requirement
on non-controlling investors.
Specifically, a number of law firms
argued that the Federal Deposit
Insurance Act does not authorize the
FDIC to impose cross-guarantee liability
on institutions that are not commonly
controlled, as their owners are not in a
position to control the management or
policies of both institutions and should
not be held responsible, directly or
indirectly, if a non-controlled
depository institution fails. Other
commenters expressed similar concerns
that the proposal goes beyond longstanding principles of corporate law and
existing federal statutes by imposing
obligations on a class of shareholder,
without regard to whether they actually
control the underlying institution. Two
commenters requested clarification that
a non-controlling investor would not be
subject to the cross guarantee
requirement.
Several commenters contended that
the cross guarantee requirement is
inconsistent with the realities of private
equity investments, which are generally
passive in nature, and will only
complicate club investments in failed
institutions. Other commenters noted
that this provision would limit
diversification of private equity
portfolios and questioned the FDIC’s
intentions with respect to its pledged
ownership interest in the event it
acquired a majority interest in an
institution, and what effect this would
have on minority investors. Other
commenters took the position that an
investor would not make an investment
where they have all the risks that come
with accountability but neither the
ability to affect nor control those risks.
A number of commenters suggested
providing an 80 percent ownership
threshold for purposes of the cross
guarantee provision. To encourage
capital investments in failed
institutions, one commenter proposed a
‘‘special dispensation’’ approach for
private capital investors holding only
one bank investment in which the
ownership limit would be increased
from 24.9 percent to a level of
controlling interest, encouraging the
investor to strengthen the bank for

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future growth. For investors holding
multiple bank investments, however,
the commenter proposed adhering to
existing regulations.
6. Transactions With Affiliates
The Proposed Policy Statement
proposed a prohibition of certain
extensions of credit by an insured
depository institution to certain related
parties. Several private investment
firms, a few law professors, some
legislators, and a banking trade
association supported the proposed
prohibition on all extensions of credit to
affiliates. The professors suggested that
the FDIC strengthen its stance by
prohibiting an insured depository
institution from engaging with an
affiliate in any ‘‘covered transaction’’ as
defined in the Federal Reserve Act and
its implementing regulations.
Most of the commenters who
registered opinions about this section
offered alternatives for dealing with
transactions with affiliates. Some
commenters noted that the absolute
prohibition went farther than the
limitations contained in Sections 23A
and 23B of the Federal Reserve Act and
their implementing regulations. Rather
than proposing a new standard, many of
the commenters recommended that the
Proposed Policy Statement instead rely
on the current restrictions on
transactions with affiliates contained in
sections 23A and 23B of the Federal
Reserve Act and the FRB’s Regulation
W.
Some suggested other alternatives. For
example, one group of private investors
suggested that all extensions of credit by
an insured depository institution to
related parties be subject to regulatory
approval for a period of three years
concurrent with that of the capital
requirement under the Proposed Policy
Statement. After that period, the
investor group suggested, the
restrictions in sections 23A and 23B of
the Federal Reserve Act would apply.
One commenter suggested that the
FDIC implement a de minimis exception
for an ownership threshold of at least 10
percent before an investor’s affiliates
would be covered by the prohibition
and that the prohibition on transactions
with affiliates should exclude existing
extensions of credit. One commenter
requested guidance as to how the new
test would apply to the lower tier
holdings of a 10 percent owned
portfolio company. Finally, one
commenter urged the FDIC to prohibit
or strictly limit the ability of private
capital investors to effect dividend
recapitalizations—that is, transactions
in which a private capital investor
borrows money on behalf of a company

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under its management and uses the
proceeds to pay dividends to investors
and investment managers.
7. Secrecy Law Jurisdictions
The FDIC received 15 comments
addressing secrecy law jurisdictions. A
majority of those comments opposed the
ban on offshore investment vehicles in
secrecy law jurisdictions in the
Proposed Policy Statement. A number of
comments expressed the belief that the
FDIC’s concerns in the area of secrecy
law jurisdictions can be addressed
through the information requests and
other aspects of the ‘‘Disclosure’’
provisions of the Proposed Policy
Statement. Similarly, one commenter
expressed the belief that verifiable
regulatory standards could be developed
to assure compliance of offshore entities
with basic anti-money laundering
policies and practices and to ensure
jurisdictional certainty with regard to
U.S. enforcement interests. A small
number of commenters suggested that
the FDIC adopt a review of secrecy law
jurisdiction cases on a case-by-case
approach.
Other commenters expressed
concerns that the Proposed Policy
Statement will result in a practical bar
on investment by many fund
organizations with non-U.S. investors.
These commenters suggested that the
Proposed Policy Statement would
restrict private capital investors bidding
on depository institutions from using
traditional funding structures that
provide tax and other efficiencies.
A number of commenters noted that
by prohibiting offshore vehicles from
making investments, the Proposed
Policy Statement would unintentionally
prohibit a parallel domestic vehicle
from investing. Commenters also
pointed out that the comprehensive
consolidated supervision exception
would likely not be applicable to fund
investors because that concept applies
only to regulated banking organizations
in other countries. Additionally, the
FDIC also received a number of
comments requesting clarification of the
Proposed Policy Statement on what is
meant by ‘‘bank secrecy jurisdiction’’
and what types of specific situations are
covered by the Proposed Policy
Statement. One comment recommended
that offshore funds established prior to
the date of the Proposed Policy
Statement be exempt from the
restrictions.
The FDIC also received comments,
including one from 3 Senators,
supporting the treatment of secrecy
jurisdictions in the Proposed Policy
Statement. The Senators’ comments
urged the FDIC to eliminate the ability

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of investors domiciled in secrecy
jurisdictions to invest in failed U.S.
banks and thrifts based on the history of
association offshore structures have
with financial fraud, money laundering,
tax evasion, and other misconduct.

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8. Continuity of Ownership
The FDIC received a number of
comments supporting the proposed
three-year continuity of ownership rule.
One commenter pointed out that it
would take management at least three
years to resolve problem assets and
restore the failed insured depository
institution to health. Commenters also
expressed the belief that a three-year
continuity of ownership rule was
necessary to prevent speculative
investors from ‘‘flipping’’ banks for
short-term profits. One commenter
opined that the holding period should
be longer than three years to protect
against private investors focused on
short term profits at the expense of long
term financial stability.
In contrast, the FDIC also received
comments expressing concern that a
three-year period is too long. A number
of these commenters proposed an 18month period as an alternative.
Commenters opposing the required
holding period also pointed out that
such a requirement could chill the
interest of private equity investors in
failed institutions. One commenter
expressed concern that the three-year
holding period might prevent a private
equity investor from conducting a
public offering of the stock of a
depository institution. Two commenters
noted that a three-year time period
overstates the time required to stabilize
the operations of a failed institution.
Another commenter argued that the sale
or transfer of ownership can, in some
instances, enhance the overall safety
and soundness of an insured depository
institution. One commenter
recommended that the holding period
requirement only pertain to the first
acquisition of a failed institution.
Other commenters suggested that the
continuity of ownership requirement is
not necessary because most private
capital investors considering a failed
bank acquisition have a long-term
investment horizon. One such
commenter suggested a de minimis
exception to the holding period
requirement. Two commenters
recommended eliminating the holding
period requirement and imposing, in its
place, a requirement that investors
obtain prior approval of acquisitions
from the Federal Reserve Board.
Another commenter recommended
applying the holding period

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requirement to only ‘‘controlling’’
private equity investors.
The FDIC also received comments
expressing concern about the
justification of the holding period
requirement. Two commenters argued
that the three-year continuity period
could be viewed as arbitrary and/or
ambiguous. Another commenter added
that new regulatory burdens and
requirements for bank acquisitions were
being imposed through the holding
period requirement without formal or
informal processing timeframes. A
number of commenters noted that the
required holding period could chill the
interest of private equity investors in
failed institutions.
Many commenters stated that
precluding an initial public offering
during the holding period, even where
the proceeds of the offering go the bank
itself, is counter to the objective of
increasing capital of banks. Other
commenters suggested that holding
companies in which investors invest, or
their subsidiaries, should be able to
conduct initial public offerings and
follow-on offerings of their own
securities without FDIC approval.
9. Special Owner Bid Limitation
The FDIC received a number of
comments expressing the opinion that
investors that owned 10 percent or more
of a failed insured depository institution
should not be eligible to bid on the
liabilities, or both such liabilities and
assets, of that failed institution in
receivership. One commenter urged the
FDIC to go farther, suggesting that any
private capital investor that held a 10
percent or greater equity interest in
three or more failed depository
institutions be permanently banned
from bidding on the deposits, or both
such deposits and liabilities, of any
failed insured depository institution.
One private equity firm expressed
concern about the general ban and
instead proposed that such investors be
evaluated on a case-by-case basis. A
national industry advocacy organization
agreed with the case-by-case approach,
and suggested that a blanket limitation
on 10 percent investors may deprive the
FDIC of the ability to effect a least-cost
resolution. Similarly, another
commenter suggested that investors
owning 10 percent or more of a failed
insured depository institution should be
eligible to bid ‘‘in exceptional
circumstances.’’
10. Disclosure
The FDIC received 4 comments
addressing the Proposed Policy
Statement’s disclosure requirements.
One comment supporting the disclosure

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requirement stated that transparency is
essential to ensure effective and prudent
oversight and regulation by U.S.
regulators. Another commenter
requested clarification of whether
information submitted by private capital
investors to the agency as part of a
bidding process would be kept
confidential. Two law firms commented
that the disclosure requirement is overly
broad. These commenters noted that any
entity formed for the purpose of
acquiring control of a bank or savings
association would be required to submit
detailed information to the FRB or the
OTS. They also sought clarification on
whether this requirement would apply
to all private capital investors without
regard to their percentage ownership.
11. Lifting of Restrictions After a Certain
Time Period of Successful Operation of
a Bank
The FDIC received 10 comments
addressing this issue. Commenters
generally suggested a three-year period
as an appropriate time frame. One
commenter noted that the limitations
should be removed after three years of
successful operation, similar to the
practice for de novo institutions.
Another commenter recommended that
the limitations in the Proposed Policy
Statement should be lifted ‘‘as the FDIC
and the primary regulator increasingly
gain comfort with a bank’s risks and
business plan.’’ Two commenters
requested that the FDIC abandon the
initiative entirely, but recommended
that such a time period not extend
beyond three years if adopted. Another
commenter defined the term ‘‘successful
operation’’ as involving the same
criteria as those that are applied to
qualification for and maintenance of
financial holding company status under
12 CFR Section 225.81. One law firm
recommended lifting the restrictions
after 18 months, noting that a shorter
holding period would prevent a
situation where private equity investors
in a failed depository institution are
operating at a competitive disadvantage.
One individual commenter suggested
that the effective period of the Proposed
Policy Statement should be the earlier of
either the completion of two
examinations that result in satisfactory
ratings or three years. Similarly, an
insured depository institution suggested
that a two-year period would provide
the FDIC with the opportunity to
evaluate the competency of the
management team in place at the
acquired institution. One private equity
firm supported the notion that an
institution, once it has been
recapitalized with new management
installed, should not be distinguished

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from any other institution with respect
to risk management.
One comment the FDIC received
recommended extending the restrictions
of the Policy Statement to a four-or-fiveyear period, with the source of strength,
cross guarantee, and bank secrecy
restrictions continuing for perpetuity.

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III. Final Statement
After consideration of the comments
described above the FDIC has made
various amendments in the text of the
Final Statement. These changes are
summarized below with the explanation
organized around each of the basic
elements of the Final Statement.
Definition of ‘‘Investors’’/Applicability
of Standards
Many investors asked for greater
precision in the definition of the types
of firms to be covered by this policy
statement. The FDIC notes that the
policy statement is just that—a policy
statement and not a statutory provision
imposing civil or criminal penalties and
that the requirements it imposes on
investors only apply to investors that
agree to its terms. Moreover, the FDIC
finds it exceedingly difficult to use
precisely defined terms to deal with the
relatively new phenomenon of private
capital funds joining together to
purchase the assets and liabilities of
failed banks and thrifts where the
investors all are less than 24.9 percent
owners but supply almost all of the
capital to capitalize the new depository
institution. The FDIC, in only a short
period of time, has seen multiple
variations in the structures that have
been employed by private capital firms
to own banks and thrifts. The FDIC also
notes that under some structures the
investors are not subject to the Bank
Holding Company Act, are not subject to
the Change in Bank Control Act, not
subject to Prompt Corrective Action, are
not institution affiliated parties, are not
subject to cross guarantees, and are not
subject to Section 23A or Section 23B of
the Federal Reserve Act. The FDIC
Board will review the operation and
impact of this Final Statement within 6
months of its approval date and shall
make adjustments as it deems necessary.
In the Final Statement, the exclusion
for private capital investors in bank or
thrift holding companies that were
created or acquired by the investor at
least three years prior to the date of the
Policy Statement has been deleted. In
response to comments that the Policy
Statement should specify a date after
which it would no longer apply, the
FDIC has added a provision that that
upon application and approval by the
FDIC’s Board of Directors the Final

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Statement will no longer apply to an
Investor in a bank or thrift, or bank or
thrift holding company of an insured
institution that was covered by the Final
Statement if the bank or thrift has
maintained a CAMELS 1 or 2 rating
continuously for seven years. The Final
Statement also makes clear that the
Final Statement would not apply to
Investors in partnerships or similar
ventures with depository institution
holding companies (excluding shell
holding companies) where the latter
have a strong majority interest in the
acquired bank or thrift and an
established record for successful
operation of insured banks or thrifts.
Such partnerships are strongly
encouraged by the FDIC. In response to
comments that the Policy Statement
should define ‘‘de minimis
investments’’, a provision has been
added that provides that the Final
Statement shall not apply to Investors
with 5 percent or less of the total voting
power of an acquired depository
institution or its bank or thrift holding
company provided there is no evidence
of concerted action by these Investors.
Finally, a provision has been added to
make clear that the FDIC Board of
Directors may waive one or more
provisions of the Final Statement if such
exemption is in the best interests of the
Deposit Insurance Fund and the goals
and objectives of the Final Statement
can be accomplished by other means.
Capital
After consideration of the comments
presented, the Final Statement revises
the capital commitment to provide for a
level of initial capitalization sufficient
to establish a ratio of Tier 1 common
equity to total assets of at least 10
percent throughout the first 3 years.
Some commenters suggested that capital
requirements should be adjusted based
on the facts of individual cases. The
FDIC adopted this suggestion in so far
as it provides that capital requirements
may be increased above 10 percent Tier
1 common equity to total assets ratio if
warranted. The specific language in the
proposed text authorizing an extension
of the 3-year period has been
eliminated. After 3 years, as in the
proposed text, the depository institution
must remain ‘‘well capitalized’’, as that
term is defined in Section 325.103(b)(1)
of the FDIC Rules and Regulations, as
long as the Investors’ ownership
continues. In response to comments that
a source of strength provision would be
difficult for private investors to apply as
a practical matter, the FDIC decided to
delete the provision. Further, as in the
proposed text, if at any time the
depository institution fails to meet this

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standard, immediate action would have
to be taken to restore the institution to
the at least 10 percent Tier 1 common
equity ratio or the ‘‘well capitalized’’
standard, as applicable.
The FDIC believes that heightened
capital levels are necessary in view of
the higher risk profile of what are de
novo institutions being acquired and for
the protection of the DIF from losses.
Depository institutions insured less than
7 years are overrepresented in the list of
institutions that have failed in 2008 and
2009 with most of the failures occurring
between the fourth and seventh years of
operation, particularly where they have
pursued early changes in business plans
and inadequate controls and risk
management practices.
Regarding the appropriate method for
measuring capital in the Final
Statement, staff considered the strong
concerns that have been raised about the
quality of bank capital (for example,
whether banks have sufficient common
equity as compared to debt-like or other
instruments that qualify as regulatory
capital), and the adequacy of the riskbased capital rules. Therefore, in the
Final Statement, the FDIC has adopted
Tier 1 common equity in the capital
ratio because it provides a stronger
measure of the capital available to
absorb losses than alternative measures.
The FDIC also asked in the Proposed
Policy Statement whether there should
be a further requirement that if capital
declines below the required capital
level, the institution would be treated as
‘‘undercapitalized’’ for purposes of
Prompt Corrective Action. Commenters
argued that depository institutions in
which private capital investors have
invested should not be subject to the
higher capital standards of the Proposed
Policy Statement but to the same
Prompt Corrective Action standards as
other institutions. They argue that a
separate and unequal Prompt Corrective
Action regime for a bank that is backed
directly or indirectly by private capital
investors provides no supervisory
benefits. As noted above, de novo
depository institutions are subject to a
considerably higher rate of failure.
Accordingly, the FDIC is of the view
that the higher capital standards
applicable under the Proposed Policy
Statement are extremely important in
order to preserve the safety and
soundness of these de novo institutions
and to protect the Deposit Insurance
Fund. Therefore, the special prompt
corrective action requirements have
been retained in the Final Statement.
Cross Support
The Proposed Policy Statement
provided that Investors that owned two

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or more depository institutions,
including one covered by this policy
statement, would have an obligation to
commit their bank or thrift investments
to support one or more of these
institutions if they failed, provided
there was sufficient common ownership
as provided in the Proposed Policy
Statement. Commenters stated that the
cross guarantee requirement would
deter private capital investment in
failed insured depository institutions
because private capital investors in
unrelated banks would not agree to a
cross guarantee commitment that places
their legally separate investments at
risk.
The Final Statement scales back the
circumstances in which what is now
referred to as ‘‘cross support’’ would be
required. A cross support obligation
would apply if two or more depository
institutions are owned by a group of
Investors covered by the Final
Statement if both depository institutions
are at least 80 percent owned by
common investors. Further, the FDIC
may waive the cross support obligation
if enforcing the obligation would not
reduce the cost of the bank or thrift
failure to the DIF.
Transactions With Affiliates
A number of commenters argued that
the restrictions under sections 23A and
23B of the Federal Reserve Act and the
Federal Reserve’s Regulation W and
Regulation O are sufficient to prevent
inappropriate affiliate and insider
transactions. Under some common
private capital investment structures for
investments in banks and thrifts, the
investors would not meet the standards
that trigger the applicability of sections
23A and 23B. The FDIC is of the view
that a special situation is presented with
respect to transactions with affiliates by
private capital investors who are not
subject to the activities restrictions of
the Bank Holding Company Act with a
resultant temptation to cause the de
novo bank they have purchased to lend
to companies in which they have
invested. Moreover, the FDIC notes that
the prohibitions on insider lending are
among the most crucial requirements for
maintaining a safe and sound banking
system and for protecting the Deposit
Insurance Fund. Accordingly, limited
changes were made to the scope of this
provision in the Final Statement.
The Final Statement modifies the
definition of the term ‘‘affiliate’’ to mean
‘‘any company in which the Investor
owns, directly or indirectly, at least 10
percent of the equity of such company
and has maintained such ownership for
at least 30 days.’’ This change is
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is based on the assumption that very
short term investments do not provide
a reason for extensions of credit. Also
added is an expectation that Investors
will provide regular reports to the
insured depository institution
identifying all affiliates. Lastly, a
provision has been added that exempts
from the prohibition existing extensions
of credit.
Bidding Eligibility of ‘‘Silo’’ Structures
Commenters acknowledged the
FDIC’s need to ascertain beneficial
ownership, clearly identify the parties
responsible for making management
decisions, and ensure that ownership
and control are not separated but
objected to the blanket prohibition on
‘‘silo’’ structures, arguing that such a
prohibition would eliminate many
investors who would be willing to meet
the FDIC’s disclosure and transparency
requirements. In the Final Statement,
the FDIC has clarified that it would not
approve ownership structures that
typically involve a private equity firm
(or its sponsor) that create multiple
investment vehicles funded and
apparently controlled by the private
equity firm (or its sponsor) to acquire
ownership of an insured depository
institution. The FDIC is concerned that
the purpose of these structures is to
artificially separate the non-financial
activities of the firm from its banking
activities so that the private equity firm
is not required to become a bank or
savings and loan holding company. This
type of structure also raises serious
concerns about the sufficiency of the
financial and managerial support to the
acquired institution, even in those
instances where the investing fund(s)
agrees to be regulated as a bank or
savings and loan holding company.
Secrecy Law Jurisdictions
Many commenters stated that a
prohibition on having any offshore
entities in an ownership structure could
restrict private capital investors from
using traditional funding structures that
provide tax and other efficiencies,
thereby hampering their ability to bid
for failed depository institutions.
In evaluating a proposal involving an
investment in an insured depository
institution, it is important that the FDIC
have adequate assurances that it will
have access to reliable information on
the operations or activities of the
investor and its affiliates. Entities
organized in secrecy law jurisdictions
can make it difficult for the FDIC as a
regulator to obtain information about a
company’s owners and its affiliates.
Therefore, the FDIC believes that the
Final Statement’s provisions requiring

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transparent ownership and full
disclosure are reasonable and prudent
and that investors can organize efficient
and functional ownership structures in
the U.S.
In response to commenters’ request
that the FDIC clarify the meaning of
‘‘bank secrecy jurisdiction’’ in the Final
Statement, the FDIC provides a
definition of bank secrecy jurisdiction
as ‘‘a country that applies a bank
secrecy law that limits U.S. bank
regulators from determining compliance
with U.S. laws or prevents them from
obtaining information on the
competence, experience and financial
condition of applicants and related
parties, lacks authorization for exchange
of information with U.S. regulatory
authorities, does not provide for a
minimum standard of transparency for
financial activities, or permits off shore
companies to operate shell companies
without substantial activities within the
host country.’’
Continuity of Ownership
The FDIC received comments
questioning the justification for the
proposed three-year holding period. The
FDIC also received comments that
indicated the three-year period was an
appropriate amount of time required to
stabilize the operations of a failed bank
or thrift. The FDIC continues to take the
position that it is important to
encourage long term investment to
promote the stability of a de novo
previously failed bank or thrift. In
particular, the FDIC has a direct interest
in stability of management on which it
depends for appropriate management of
any agreements it may have with a bank
or thrift concerning losses at that bank
or thrift. Therefore, the Final Statement
has largely left unchanged this
prohibition absent prior FDIC approval,
but has added a statement that in the
case of transfers to affiliates FDIC
approval shall not be unreasonably
withheld provided the affiliate agrees to
be subject to the same requirements that
are applicable under this policy
statement to the transferring Investor. In
the Final Statement, the three-year
holding period does not apply to mutual
funds defined as an open-ended
investment company registered under
the Investment Company Act of 1940
that issues redeemable securities that
allow investors to redeem on demand.
Disclosures
The FDIC believes that this feature
could likely be implemented without
significantly deterring private capital
investments. In an effort to address
commenters’ concerns about
confidentiality, in the Final Statement

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the FDIC provides that confidential
business information will be treated as
such and not disclosed except in
accordance with applicable law.
V. Regulatory Analysis and Procedure

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Paperwork Reduction Act
In accordance with the requirements
of the Paperwork Reduction Act of 1995
(PRA), 44 U.S.C. Ch. 3501 et seq., the
FDIC may not conduct or sponsor, and
the respondent is not required to
respond to, an information collection
unless it displays a currently valid
Office of Management and Budget
(OMB) control number. The Final Policy
contains reporting and recordkeeping
requirements that constitute a collection
of information as contemplated by the
PRA. Specifically, the Final Policy sets
forth the expectation that investors
subject to the policy will provide
regular reports that identify all affiliates
(as that term is defined in the Final
Policy) of the investor; that investors
that own an interest in an insured
depository institution and that employ
ownership structures utilizing entities
that are domiciled in bank secrecy
jurisdictions (as that term is defined in
the Final Policy) will maintain business
books and records (or duplicates
thereof) in the U.S.; and that investor
will submit information to the FDIC
regarding the investors and all entities
in the ownership chain, including
information on the size of capital funds,
diversification, return profile, marketing
documents, the management team,
business model, and such other
information required by the FDIC. The
FDIC has submitted to OMB a request
for approval, by August 28, 2009, of the
information collection under emergency
clearance procedures. The estimated
burden is as follows:
Title: Qualifications for Failed Bank
Acquisitions.
OMB Number: 3064–[new].
Estimated Number of Respondents:
Investor Reports on Affiliates: 20.
Maintenance of Business Records: 5.
Disclosures Regarding Investors and
Entities in Ownership Chain: 20.
Frequency of Response:
Investor Reports on Affiliates: 12.
Maintenance of Business Records: 4.
Disclosures Regarding Investors and
Entities in Ownership Chain: 4.
Average hours per response:
Investor Reports on Affiliates: 2.
Maintenance of Business Records: 2.
Disclosures Regarding Investors and
Entities in Ownership Chain: 4.
Total annual burden—840 hours
If approved by OMB under emergency
authority, the FDIC will proceed with a
request for approval under normal

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clearance procedures, including an
initial 60-day request, and subsequent
30-day request, for comments on: (1)
Whether this collection of information
is necessary for the proper performance
of the FDIC’s functions, including
whether the information has practical
utility; (2) the accuracy of the estimates
of the burden of the information
collection, including the validity of the
methodologies and assumptions used;
(3) ways to enhance the quality, utility,
and clarity of the information to be
collected; and (4) ways to minimize the
burden of the information collection on
respondents, including through the use
of automated collection techniques or
other forms of information technology.
Pending publication of the initial 60-day
notice, interested parties are invited to
submit written comments on the
estimated burden herein by any of the
following methods:
• http://www.FDIC.gov/regulations/
laws/federal/propose.html.
• E-mail: [email protected].
• Mail: Leneta Gregorie (202–898–
3719), Counsel, Federal Deposit
Insurance Corporation, 550 17th Street,
NW., Washington, DC 20429.
• Hand Delivery: Comments may be
hand-delivered to the guard station at
the rear of the 550 17th Street Building
(located on F Street), on business days
between 7 a.m. and 5 p.m.
A copy of the comment may also be
submitted to the OMB Desk Officer for
the FDIC, Office of Information and
Regulatory Affairs, Office of
Management and Budget, New
Executive Office Building, Room 3208,
Washington, DC 20503. All comments
should refer to the name of the
collection.
The text of the Final Statement of
Policy on Qualifications for Failed Bank
Acquisitions follows:
Final Statement of Policy on Qualifications
for Failed Bank Acquisitions
In order to provide guidance about the
standards for more than de minimis
investments in acquirers of deposit liabilities
and the operations of failed insured
depository institutions, the FDIC has adopted
this Statement of Policy (‘‘SOP’’). It is the
intent of the FDIC Board of Directors that this
Statement of Policy applies to investors and
is not intended to interfere with or supplant
the preexisting regulation of holding
companies. The Board of Directors will
review the operation and impact of this SOP
within 6 months of its approval date and
shall make adjustments, as it deems
necessary.
Applicability. Except as provided below,
this SOP will apply prospectively to:
(a) private investors in a company,
including any company acquired to facilitate
bidding on failed banks or thrifts that is
proposing to, directly or indirectly,

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(including through a shelf charter) assume
deposit liabilities, or such liabilities and
assets, from the resolution of a failed insured
depository institution; and
(b) applicants for insurance in the case of
de novo charters issued in connection with
the resolution of failed insured depository
institutions (hereinafter ‘‘Investors’’).
This SOP shall not apply to acquisitions of
failed depository institutions completed prior
to its approval date.
Following application to and approval by
the FDIC Board of Directors, taking into
consideration whether the ownership
structure of such bank, thrift or holding
company is consistent with the objectives of
this SOP, this SOP shall not apply to an
Investor in a bank or thrift, or bank or thrift
holding company where the bank or thrift
has maintained a composite CAMELS 1 or 2
rating continuously for seven (7) years.
This SOP shall not apply to:
(a) investors in partnerships or similar
ventures with bank or thrift holding
companies or in such holding companies
(excluding shell holding companies) where
the holding company has a strong majority
interest in the resulting bank or thrift and an
established record for successful operation of
insured banks or thrifts. Such partnerships
are strongly encouraged; or
(b) investors with 5 percent or less of the
total voting power of an acquired depository
institution or its bank or thrift holding
company provided there is no evidence of
concerted action by these Investors.
Under expedited procedures established by
the Chairman, the FDIC Board of Directors
may waive one or more provisions of this
SOP if such exemption is in the best interests
of the Deposit Insurance Fund and the goals
and objectives of this SOP can be
accomplished by other means.
B. Capital Commitment: The resulting
depository institution shall maintain a ratio
of Tier 1 common equity to total assets of at
least 10 percent for a period of 3 years from
the time of acquisition. Thereafter, the
depository institution shall maintain no
lower level of capital adequacy than ‘‘well
capitalized’’ during the remaining period of
ownership of the Investors.
If at any time the depository institution
fails to meet this standard, the institution
would have to immediately take action to
restore capital to the 10 percent Tier 1
common equity ratio or the ‘‘well
capitalized’’ standards, as applicable. Failure
to maintain the required capital level will
result in the institution being treated as
‘‘undercapitalized’’ for purposes of Prompt
Corrective Action triggering all of the
measures that would be available to the
institution’s regulator in such a situation.
Tier 1 common equity is defined as Tier 1
capital minus non-common equity elements.
Non-common equity elements are defined as
qualifying perpetual preferred stock, plus
minority interests and restricted core capital
elements not already included.
C. Cross Support: If one or more Investors
own 80 percent or more of two or more banks
or thrifts, the stock of the banks or thrifts
commonly owned by these Investors shall be
pledged to the FDIC, and if any one of those
owned depository institutions fails, the FDIC

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jlentini on DSKJ8SOYB1PROD with NOTICES

Federal Register / Vol. 74, No. 169 / Wednesday, September 2, 2009 / Notices
may exercise such pledges to the extent
necessary to recoup any losses incurred by
the FDIC as a result of the bank or thrift
failure. The FDIC may waive this pledge
requirement where the exercise of the pledge
would not result in a decrease in the cost of
the bank or thrift failure to the Deposit
Insurance Fund.
D. Transactions With Affiliates: All
extensions of credit to Investors, their
investment funds if any, and any affiliates of
either, by an insured depository institution
acquired by such Investors under this SOP
would be prohibited. Existing extensions of
credit by an insured depository institution
acquired by such Investors would not be
covered by the foregoing prohibitions.
For purposes of this SOP the terms (a)
‘‘extension of credit’’ is as defined in 12 CFR
223.3(o) and (b) ‘‘affiliate’’ is any company in
which the Investor owns, directly or
indirectly, at least 10 percent of the equity of
such company and has maintained such
ownership for at least 30 days. Investor(s) are
to provide regular reports to the insured
depository institution identifying all affiliates
of such Investor(s).
E. Secrecy Law Jurisdictions: Investors
employing ownership structures utilizing
entities that are domiciled in bank secrecy
jurisdictions would not be eligible to own a
direct or indirect interest in an insured
depository institution unless the Investors
are subsidiaries of companies that are subject
to comprehensive consolidated supervision
(‘‘CCS’’) as recognized by the Federal Reserve
Board and they execute agreements on the
provision of information to the primary
federal regulator about the non-domestic
Investors’ operations and activities; maintain
their business books and records (or a
duplicate) in the U.S.; consent to the
disclosure of information that might be
covered by confidentiality or privacy laws
and agree to cooperate with the FDIC, if
necessary, in obtaining information
maintained by foreign government entities;
consent to jurisdiction and designation of an
agent for service of process; and consent to
be bound by the statutes and regulations
administered by the appropriate U.S. federal
banking agencies.
For the purposes of this paragraph E, a
‘‘Secrecy Law Jurisdiction’’ is defined as a
country that applies a bank secrecy law that
limits U.S. bank regulators from determining
compliance with U.S. laws or prevents them
from obtaining information on the
competence, experience and financial
condition of applicants and related parties,
lacks authorization for exchange of
information with U.S. regulatory authorities,
does not provide for a minimum standard of
transparency for financial activities, or
permits off shore companies to operate shell
companies without substantial activities
within the host country.
F. Continuity of Ownership: Investors
subject to this policy statement are
prohibited from selling or otherwise
transferring their securities for a 3 year
period of time following the acquisition
absent the FDIC’s prior approval. Such
approval shall not be unreasonably withheld
for transfers to affiliates provided the affiliate
agrees to be subject to the conditions

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applicable under this policy statement to the
transferring Investor. These provisions shall
not apply to mutual funds defined as an
open-ended investment company registered
under the Investment Company Act of 1940
that issues redeemable securities that allow
investors to redeem on demand.
G. Prohibited Structures: 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, would be so substantially
inconsistent with the principles outlined
above as not to be considered as appropriate
for approval for ownership of insured
depository institutions. Structures of this
type that have been proposed for approval
have been typified by organizational
arrangements involving a single private
equity fund that seeks to acquire ownership
of a depository institution through creation of
multiple investment vehicles, funded and
apparently controlled by the parent fund.
H. Special Owner Bid Limitation: Investors
that directly or indirectly hold 10 percent or
more of the equity of a bank or thrift in
receivership will not under any
circumstances be considered eligible to be a
bidder to become an investor in the deposit
liabilities, or both such liabilities and assets,
of that failed depository institution.
I. Disclosure: Investors subject to this
policy statement would be expected to
submit to the FDIC information about the
Investors and all entities in the ownership
chain including such information as the size
of the capital fund or funds, its
diversification, the return profile, the
marketing documents, the management team
and the business model. In addition,
Investors and all entities in the ownership
chain will be required to provide to the FDIC
such other information as is determined to be
necessary to assure compliance with this
policy statement. Confidential business
information submitted by Investors to the
FDIC in compliance with this paragraph I
shall be treated as confidential business
information and shall not be disclosed except
in accordance with law.
J. Limitations: Nothing in this policy
statement is intended to replace or substitute
for any determination required by a relevant
depository institution’s primary federal
regulator or a federal bank or thrift holding
company regulator under any applicable
regulation or statute, including, in particular,
bank or thrift holding company statutes, or
with respect to determinations made and
requirements that may be imposed in
connection with the general character, fitness
and expertise of the management being
proposed by the Investors, the need for a
thorough and reasonable business plan that
addresses business lines and strategic
initiatives and includes appropriate
contingency planning elements, satisfactory
corporate governance structure and
representation, and any other supervisory
matter.
By order of the Board of Directors.
Dated at Washington, DC, this 26th day of
August 2009.

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45449

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. E9–21146 Filed 9–1–09; 8:45 am]
BILLING CODE 6714–01–P

FEDERAL RESERVE SYSTEM
Change in Bank Control Notices;
Acquisition of Shares of Bank or Bank
Holding Companies
The notificants listed below have
applied under the Change in Bank
Control Act (12 U.S.C. 1817(j)) and
§ 225.41 of the Board’s Regulation Y (12
CFR 225.41) to acquire a bank or bank
holding company. The factors that are
considered in acting on the notices are
set forth in paragraph 7 of the Act (12
U.S.C. 1817(j)(7)).
The notices are available for
immediate inspection at the Federal
Reserve Bank indicated. The notices
also will be available for inspection at
the office of the Board of Governors.
Interested persons may express their
views in writing to the Reserve Bank
indicated for that notice or to the offices
acquire control of 21.51 percent of
Community FirstBancshares, Inc.,
Union City, Tennessee (‘‘Bancshares’’),
and the Kirkland family control group
will acquire controlof 25.82 percent of
Bancshares.of the Board of Governors.
Comments must be received not later
than September 15, 2009.
A. Federal Reserve Bank of Chicago
(Colette A. Fried, Assistant Vice
President) 230 South LaSalle Street,
Chicago, Illinois 60690-1414:
1. Gary Shiffman, West Bloomfield,
Michigan; Arthur Weiss, Farmington
Hills, Michigan; Ronald Klein,
Bloomfield Hills, Michigan; Paul
Hodges, Orchard Lake, Michigan;
Roman Ferber, West Bloomfield,
Michigan; David Freidman, West
Bloomfield, Michigan; Steven Freidman,
West Bloomfield, Michigan; Brian
Wenzel, Howell, Michigan; Sheldon
Yellen, Bloomfield Hills, Michigan; Gary
Torgow, Oak Park, Michigan; Dov
Loketch, Oak Park, Michigan; Joseph
Nusbaum, Oak Park, Michigan; David
Provost, Birmingham, Michigan; Max
Berlin, Southfield, Michigan; Donald
Coleman, Bonita Springs, Florida;
Albert Papa, Birmingham, Michigan;
Robert Naftaly, West Bloomfield,
Michigan; Thomas Schellenberg, Cross
Village, Michigan; Thomas Brown,
Farmington Hills, Michigan; Christine
Otto, Oxford, Michigan; James Dunn,
Livonia, Michigan; Gary Sakwa,
Bloomfield Hills, Michigan; Frank
Hennessey, Ocala, Florida; Christine
Provost, Birmingham, Michigan; Scott

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