Failure Acquisitions Booklet

Office of the
Comptroller of the Currency
Washington, DC 20219

COMPTROLLER’S LICENSING MANUAL

Failure Acquisitions

January 2019

Contents
Introduction ............................................................................................................................. 1
Bid Process ............................................................................................................................... 2
FDIC ..................................................................................................................................... 2
OCC ...................................................................................................................................... 2
Bid Submission and Review ................................................................................................. 3
Glossary ................................................................................................................................... 7
References ................................................................................................................................ 8

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Introduction
This booklet sets forth the Office of the Comptroller of the Currency’s (OCC) policies and
procedures for a national bank or a federal savings association (collectively, banks) seeking
to participate in the Federal Deposit Insurance Corporation’s (FDIC) process for resolving a
failing insured depository institution (IDI).
The OCC’s approval is required before a bank may acquire a failing IDI through the FDIC
bidding process. Although failure acquisitions may be structured in many ways, this guidance
discusses the most common type, a purchase of some or all of the assets and assumption of
some or all of the liabilities, including all insured deposits, of a failing IDI by a bank.
Banks should contact the appropriate OCC licensing office to discuss filing requirements,
timelines, and other issues. Banks unfamiliar with the failure acquisition process should
discuss their plans and any other related questions with the OCC well in advance of
submitting an application. Organizing groups that are interested in chartering a new bank for
the purposes of bidding on a failing IDI should consult with licensing for guidance regarding
the charter process and refer to the “Charters” booklet for additional guidance and specific
filing instructions.
When a bank seeks to acquire a failing IDI, other requests may be submitted to the OCC with
the purchase and assumption (P&A) application. These requests may include applications for
investment in subsidiaries, equity investments, new branches, branch relocations, and
fiduciary powers. Each request should be responsive to the OCC’s specific filing
requirements, as applicable.
Refer to the “General Policies and Procedures,” “Charters,” “Branches and Relocations,”
“Business Combinations,” “Investment in Subsidiaries and Equities,” “Fiduciary Powers,”
and “Management Interlocks” booklets of the Comptroller’s Licensing Manual for further
guidance.

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Bid Process
FDIC
After being notified of the potential failure of an IDI, the FDIC prepares to be appointed
receiver and to sell the IDI in its role as receiver. An overview of the FDIC’s process is
available at FDIC.gov.
The FDIC works with the applicable chartering authorities and federal regulators to resolve
failing IDIs. The FDIC’s Division of Resolutions and Receiverships compiles a list of IDIs,
bank holding companies, savings and loan holding companies, individuals, and chain
banking groups 1 that may be interested in acquiring the failing IDI and that meet specific
requirements established by the FDIC. This list is commonly referred to as the “bid list.” The
FDIC provides the bid list to the OCC, the Federal Reserve, and the appropriate state banking
regulatory authorities to obtain additional supervisory information about the prospective
acquirers. The FDIC retains the ultimate authority to include or exclude a potential acquirer,
although it excludes a bank if the appropriate banking regulatory agency objects to the bank’s
inclusion on the bid list.2
The P&A is the most common method used by the FDIC to resolve a failing IDI. This
transaction can vary based on such factors as the amount of time available to arrange the
transaction, the location and size of the failing IDI, the nature of its deposits, and the assets
available for sale. Generally, the FDIC attempts to sell as many of the failing IDI’s assets and
deposits as possible at the time of closing; however, the results of the winning bid must meet
the mandated lowest cost to the FDIC Deposit Insurance Fund requirement. For more
information on the different types of FDIC resolution transactions and the resolution process,
refer to the FDIC’s Resolutions Handbook.

OCC
The OCC’s licensing office reviews the bid list and confirms through the Supervisory Office
that any listed bank may remain on the bid list. If the OCC determines that a bank should not
be on the bid list, it requests that the FDIC remove that bank from the bid list. The OCC also
notifies the bank whether or not it may remain on the bid list. The licensing office contacts
the U.S. Department of Justice (DOJ) indicating the name of the failing IDI and the name of
any bank that is interested in submitting a bid.

1

These are groups that control several banks, but not through a holding company structure.

2

The FDIC may revise the bid list throughout the resolution process.

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Bid Submission and Review
The FDIC sets a bid deadline. At least five days before the bid deadline, potential bank
bidders should send to the OCC a draft P&A application and a copy of the FDIC submission.
The OCC reviews the draft P&A application for accuracy, completeness, and adherence to
key policies. Failure to meet the general guidelines, or submission of a proposal that may
have an adverse supervisory effect on the acquiring bank, may lead the OCC to not grant the
bank permission to submit a bid.
The P&A application consists of the following:
•
•

•
•
•
•
•
•

Interagency Streamlined Business Combination Application
Financial information
- Pro forma balance sheet
- Projected combined statement of income
- Pro forma and projected regulatory capital schedule (including risk-based capital
calculation)
List of directors and senior executive officers of the resulting bank
List of branches that require authorization
Certification of compliance with laws and regulations
Request for confidentiality, if applicable
Other corporate requests (such as fiduciary powers or new branches)
Filing fee, if applicable

In reviewing the P&A application, the OCC considers
•
•
•
•
•

the purpose of the transaction;
the capital level of the resulting bank;
the conformity of the transaction to applicable laws, regulations, and policies;
the impact of the transaction on the safety and soundness of the bank; and
the effect of the transaction on the bank’s shareholders or members, depositors, other
creditors, and customers.

Under the Bank Merger Act (BMA), the OCC also considers
•
•
•
•
•
•

the effect of the proposed transaction on competition;
the financial and managerial resources and future prospects of the resulting bank;
the probable effects of the transaction on the convenience and needs of the community
served;
the bank’s effectiveness in combating money laundering activities, including overseas
branches;
the risk to the stability of the U.S. banking and financial systems; and
the bank’s performance in helping to meet the credit needs of the community, including
low- and moderate-income neighborhoods.

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The OCC reviews the application to determine whether the bank’s plan presents a reasonable
business strategy. If unprecedented or unusual banking services or corporate arrangements
are proposed, the OCC may require additional information and may conduct a more
extensive review. 3 In addition, the bank’s performance record may cause the OCC to
condition the bank’s ability to bid to acquire a failing IDI or to prohibit the bank from
submitting a bid.
The OCC’s approval of the proposal is based on applicable supervisory and legal factors and
the supporting information and analysis, rather than on the size of the premium. To maintain
maximum flexibility, banks may disclose a premium range in the application. The acquiring
bank must provide a satisfactory risk assessment relative to its ability to manage the
acquisition successfully. The OCC reserves the right to approve or deny any proposal
submitted based on its consideration of the applicable supervisory and legal factors.
The review and analysis of proposals sponsored by holding companies or by persons
affiliated with other banking organizations (affiliated institutions) are not confined to the
proposed acquisition. The OCC also considers the performance record of the holding
company or affiliated institutions. The OCC may review Federal Reserve Y-6 reports, U.S.
Securities and Exchange Commission filings, annual reports to stockholders, reports of
examination, financial statements, and any other information available to the OCC in its
supervisory capacity. In addition, a holding company’s or affiliated institution’s overall
business plan (e.g., strategy, capital, management, and profitability) may be reviewed for
consistency and compatibility with the proposal.
The strength of the holding company, combined with the direct support it offers to its bank
subsidiaries, can mitigate concerns over capital, draft operating plans, or other supervisory
matters. The OCC may approve an application when the holding company or affiliated
institution serves as a substantial source of strength, even in markets where economic
conditions are weak or competitive conditions are intense.
Conversely, the poor condition of a holding company or its affiliates, or the absence of any
evidence of the holding company’s support of its bank subsidiaries, may result in the OCC
denying the application. When the bank proposing to acquire the failing IDI is affiliated with
institutions subject to supervisory concerns, the OCC, based on the facts and circumstances
involved, may deny the application or approve it subject to conditions.
Any questions the OCC has raised about the proposed transaction and the factors the OCC
considers in its decision should be resolved before the FDIC’s deadline. Once the OCC
completes its review of the application, it will inform the FDIC of the proposal’s
acceptability, that it does not object to the bidder’s submission, and that the OCC will grant
the necessary final certification upon consummation of the transaction if the bank is selected
as the winning bidder. The OCC will also contact the bank and inform them whether or not
the bank may proceed with a bid.

3

Generally, the OCC eliminates from the bid list banks with significant supervisory concerns or those that are
not large enough to acquire the failing IDI.

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Public Notice and Competitive Factors
Generally, an applicant for a business combination must publish notice of the filing. When
the OCC determines that it must immediately approve an acquisition to resolve an actual or
imminent failure of an IDI, the OCC waives the public notice requirement. Under the BMA,
the OCC is required to request comments from the DOJ on the competitive effects of the
transaction. When the OCC determines that it must immediately approve an acquisition to
resolve an actual or imminent failure of an IDI, the OCC is not required to request a
competitive factors report. 4

Legal Considerations
The P&A application should include a certification by an official of the bank that the
proposed transaction conforms to applicable federal laws and regulations and is not in
contravention of applicable state laws and regulations. This certification should indicate that
any action required by law will be taken before consummation of the transaction. If the
proposal presents novel or precedent-setting legal issues, an opinion from counsel should be
provided.

Accounting Considerations
Accounting for the acquisition of a failed IDI follows the same accounting principles that are
used in any other nonaffiliated business combination. The “Business Combinations” booklet
provides guidance on these issues. Certain acquisitions may result in a bargain purchase due
to their nature, structure, and timing. In general, a bargain purchase occurs when the fair
value of the net assets acquired exceeds the fair value of the consideration transferred by the
acquiring institution. This excess should be recognized as a gain in earnings (bargain
purchase gain), which increases equity under generally accepted accounting principles. In
other circumstances, the amount paid to acquire the net assets of the failed IDI is greater than
the fair value of those net assets. The premium paid is recognized as goodwill by the
acquiring bank. For further guidance, refer to the “Interagency Supervisory Guidance on
Bargain Purchases and FDIC- and NCUA-Assisted Acquisitions.” 5

4

Section 2 of the Sherman Act (15 USC 2), as incorporated in paragraph 5 of the BMA (12 USC
1828(c)(5)(A)), remains applicable in a P&A acquisition of a failing IDI, including cases where overnight
processing dispenses with notice to the DOJ and the request for a competitive factor report. When large postacquisition market shares are anticipated, potential bidders are encouraged to speak with the DOJ and the OCC
as early in the bidding process as possible to determine if a successful bid could trigger competitive
considerations that would have an impact on the approval of an application under the BMA.

5

As articulated in the guidance, although bargain purchase gains are included in the computation of regulatory
capital for reporting purposes, a financial institution’s primary regulator may determine that the acquisition-date
estimated bargain purchase gain lacks sufficient permanence as a component of regulatory capital for
supervisory and licensing decision-making purposes. Therefore, for the purposes of calculating compliance with
regulatory capital standards, the OCC generally requires that after the acquisition, the bargain purchase gain
estimate should not be reported as regulatory capital until the value has been verified over a period not to
exceed one year.

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Branches
To promote the continuation of banking services to the affected communities, the acquiring
bank is generally expected to operate the branches, main office or home office (collectively,
offices) of the failed IDI for at least 90 days after the acquisition. At the end of the 90-day
period, the acquiring bank has the option to either retain or not retain any of the acquired
offices as branches of the acquiring bank. 6 As appropriate, the OCC approves the retention of
the acquired offices, at consummation, under applicable laws and regulations.

Decision and Consummation
If an OCC-regulated bank is the winning bidder, the FDIC notifies the OCC a few days prior
to the proposed failed IDI closing date. On the closing date, the FDIC is appointed as
receiver, and it enters into a P&A transaction with the winning bank to purchase certain
assets and assume certain liabilities of the failed IDI. On the same day, the OCC issues
written approval of the P&A application. The OCC also issues a written certification of
consummation and retention of offices following the consummation of the transaction, as
appropriate.

6

An acquirer’s decision to not retain a branch after the 90-day period does not constitute a branch closing.
Therefore, no advance branch closing notice is submitted to the OCC.

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Glossary
Deposit Insurance Fund: The insurance fund responsible for protecting depositors of FDICinsured institutions from loss due to institution failures. The FDIC is the administrator of the
Deposit Insurance Fund.
Insured depository institution: Any bank or savings association, as defined in 12 USC
1813(a) and (b), respectively, the deposits of which are insured by the FDIC.
Premium: An amount generally paid by the acquiring bank to the receiver to purchase the
assets and assume the liabilities of a failed institution at an amount greater than fair value.
Primary regulator: The banking agency responsible for regulating a depository institution.
The OCC is the primary regulator of national banks and federal savings associations. The
appropriate state banking regulatory authority regulates its state-chartered institutions. In
addition to a state bank’s chartering authority, state banks have a primary federal regulator
which is the FDIC, or in the case of state banks that are members of the Federal Reserve
System, the Board of Governors of the Federal Reserve System. In a failure transaction
involving an IDI, the OCC or the appropriate state banking regulatory authority notifies the
FDIC when the IDI is in imminent danger of failing. The OCC, state authority, or FDIC in
certain circumstances involving state banks, later determines that grounds for a receivership
exist and appoints the FDIC as receiver.
Purchase and assumption: In the context of failure acquisition, this refers generally to the
acquisition of a failed IDI that the receiver structures as a P&A transaction. A P&A
transaction is governed by the P&A agreement between the purchaser and the receiver that
transfers certain assets and deposits and other liabilities to the purchaser. Shareholders of the
acquiring bank generally are not required to approve the transaction.
Receiver: A person or entity, including a government agency, appointed to handle the assets
and liabilities of a failed institution. A receiver succeeds to all the interests and property
owned by the failed institution. Congress requires the FDIC to be the receiver for federally
chartered IDIs. The FDIC may accept appointment as the receiver of an insured state
depository institution and has authority under certain circumstances to appoint itself as the
receiver for an insured state depository institution.

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References
In this section, “NB” denotes that the referenced law, regulation, or issuance applies to
national banks, and “FSA” denotes that the reference applies to federal savings associations.
Assistance to Insured Depository Institutions
Law
12 USC 1823, 1823(c)(1), (2)(a), 1823(f)(2)(A)
Branches
Law

12 USC 36 (NB)
12 USC 1464(m), 1464(r) (FSA)
12 CFR 5.30 (NB)
12 CFR 5.31 (FSA)

Regulation

Federal Reserve Board
Law

12 USC 222, 12 USC 501a (NB)

Fiduciary Powers
Law

12 USC 92a (NB)
12 USC 1464(n) (FSA)
12 CFR 5.26

Regulation
Independent External Audit
Law

12 USC 1831m

Investment in Bank Premises
Law
Regulation

12 USC 29, 371d (NB)
12 CFR 5.37
12 CFR 7.1000 (NB)

Purchase and Assumption
Law
Regulation

12 USC 24(7) (NB), 1828(c)
12 CFR 5.33, 5.53

Receivership and Conservatorship
Law

Trust Bank
Law
Regulation

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12 USC 191 (NB)
12 USC 1464(d) (FSA)
12 USC 1821
12 USC 27, 92a, 1841(c)(2)(D) (NB)
12 USC 1464, 1467a(a)(1)(D) (FSA)
12 CFR 5.26
12 CFR 9 (NB)
12 CFR 150 (FSA)

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