As the number of troubled and failed depository institutions continues to rise, so does the government’s need to find buyers for as many of these banks and thrifts as possible, in order to mitigate the loss to the FDIC insurance fund and taxpayers. However, only existing depository institutions and their holding companies have been eligible to participate in the FDIC-run auctions, and the number of existing institutions or holding companies healthy enough to absorb a troubled or failed institution without themselves becoming troubled is relatively small. Accordingly, in an effort to increase the universe of potential bidders, the Office of the Comptroller of the Currency (“OCC”) has created a new process by which a party may obtain a national bank charter (and, thereby, qualify to participate in the FDIC auctions) without actually having to acquire or charter a live bank.
Under the new process, a party may receive a “shelf charter” that is essentially a preliminary approval to own a bank. The shelf charter enables the holder to participate in the FDIC auction process to the same extent as any other party with a bank or thrift charter; however, the shelf charter lies dormant until the holder later applies to acquire a specific institution and is approved.
Because the granting of a shelf charter does not involve an actual bank, the process to obtain one is simpler and quicker than the normal OCC process. An applicant must generally demonstrate that it has available funds sufficient to acquire and recapitalize a potential target institution and an available management team with sufficient experience operating a bank. The applicant will also need to submit a streamlined business plan generally indicating how it would run a hypothetical target. However, the more detailed review required for a normal charter is deferred until such time as the shelf charter holder becomes the chosen bidder for a troubled or failed institution. If the holder has not made an acquisition within 18 months of the shelf charter approval, the charter will expire. The OCC granted its first shelf charter to Commerce Street Capital LLC, which sought to organize a bank holding company and establish a national bank, Ford Group Bank NA, “primarily for the purpose of assuming liabilities and purchasing assets from the FDIC as receiver of a depository institution.” 1
It is important to note that this new process is merely a procedural change, albeit a helpful one. It does not alter the thresholds at which a party will be deemed to control a depository institution, the prerequisites for such control, or the consequences of such control. Entities that acquire control of an institution via a shelf charter, must still comply with the Bank Holding Company Act (most notably, the activity restrictions and capital requirements imposed on bank holding companies) and become subject to the regulation and supervision of the Federal Reserve Board.
Thus, while the shelf charter confers the ability to more readily compete in the FDIC bid process (particularly by allowing shelf charter holders to review and evaluate the FDIC’s non-public list of troubled and failing institutions), it does not alter any of the substantive issues that have thus far limited the ability or willingness of private equity firms and other non-financial companies to acquire depository institutions.