At a meeting on August 26, the Federal Deposit Insurance Corporation (FDIC) adopted a final policy statement that establishes standards for bidder eligibility for private equity investors and similar nonbank investors seeking to acquire or invest in the deposit liabilities and operations of failed insured depository institutions through the FDIC resolution process.
The policy statement reflects a number of liberalizations and clarifications to certain key provisions of the original proposal, which was issued by the FDIC for public comment on July 2.
The key changes to the original proposal that are made by the final policy statement are:
- A reduction of the minimum capital level required to be maintained by the resulting depository institution involved in an acquisition of the failed bank or thrift for the first three years after the acquisition from a 15 percent Tier 1 leverage ratio to a 10 percent ratio of Tier 1 common equity to total assets;
- Elimination of the proposed "source of strength" requirement for private equity investors in failed banks or thrifts;
- Scaling back the circumstances under which a cross-guaranty obligation to the FDIC would be imposed upon a private equity investor owning stakes in two or more depository institutions with other investors (and where at least one such institution was acquired in receivership from the FDIC) by increasing the common ownership threshold required to trigger the obligation from a majority to 80 percent; and
- Certain clarifications as to the investors and investor ownership structures covered by the policy statement, some of which are intended to encourage private equity investors to co-invest with traditional bank or thrift holding companies that have large controlling stakes in their depository institution subsidiaries.
Despite these and other changes, the final policy statement still subjects private equity investors seeking to acquire or invest in failed depository institutions to more burdensome requirements and standards than are applicable to depository institutions owned by traditional holding companies.
Click here for an expanded client alert on the FDIC's final policy statement.
Policy Statement: Statement of Policy on the Acquisition of Failed Insured Depository Institutions (August 26, 2009) (PDF)
Related Alert: FDIC Proposes Stringent New Rules For Private Equity Investors in Failed Depository Institutions (July 2, 2009) (PDF)