In an article entitled “Update the Rules for Private-Equity Stakes” published in the American Banker on Friday, August 29, 2008, Thomas P. Vartanian and Robert H. Ledig suggested that the banking agencies should work together to develop a way to provide a banking charter to investors to allow them to bid for failing banks being marketed by the Federal Deposit Insurance Corporation (“FDIC”). On November 21, 2008, the Office of the Comptroller of the Currency (“OCC”) announced a program to approve “shelf charters” for national banks, having issued its first approval of a shelf charter on November 17, 2008, as a way of expanding the pool of investors eligible to bid to acquire failing depository institutions.  

The FDIC, acting as receiver for a failed depository institution, has routinely solicited bids prior to an institution’s closing only from banks or thrifts, for a variety of reasons ranging from the speed and confidentiality needed to complete a transaction, to its desire to transfer deposits immediately and not have any interruption in service to depositors. Now, potential acquirers can receive conditional preliminary approval to organize a national bank from the OCC, which they can activate once they have been awarded a failing bank by the FDIC.  

The requirements for potential investors remain substantial, however. At the initial stage of a shelf charter application, the OCC will evaluate the qualifications of the proposed management team (which means that organizers must obtain firm commitments from all key officers), the proposed ownership structure, the sources and amounts of capital available to the national bank in organization, the overall strategic plan and a streamlined business plan. After preliminary approval is granted, the organizers must keep the OCC informed regarding the status of their application to the FDIC for deposit insurance, their application to the Federal Reserve if a bank holding company also is being organized, and any material changes in the information submitted for the preliminary approval. Federal Reserve approval may continue to pose challenges of its own for private equity groups that are part of the ownership structure.  

New national banks created through this process are required to enter into an Operating Agreement with the OCC, and they must submit a comprehensive long-term business plan. The OCC recently obtained such an agreement in connection with the acquisition of a national bank by an individual investor. That Operating Agreement constitutes a “written agreement” for purposes of bank enforcement requirements under 12 U.S.C. § 1818 and generally requires that a wide variety of plans, operations and potential changes in the institution be subject to prior OCC approval.

If the initial proposed transaction does not take place, the charter may remain “on the shelf” for up to 18 months and be used for other bids.  

The Office of Thrift Supervision has been receptive to the concept of shelf charters on a case-by-case basis and is reported to be working on a formal program of its own.