45440 Federal Register / Vol. 74, No. 169 / Wednesday, September 2, 2009 / Notices 

1 74 FR 32931 (Jul. 9, 2009) 

Dated: August 20, 2009. 

Andrew M. Gaydosh, 

Acting Regional Administrator, Region 8. 

[FR Doc. E9–20801 Filed 9–1–09; 8:45 am] 

BILLING CODE 6560–50–P 

FARM CREDIT ADMINISTRATION 

Farm Credit Administration Board; 

Regular Meeting 

AGENCY: 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: 

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 

• 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). 

[FR Doc. E9–21291 Filed 8–31–09; 4:15 pm] 

BILLING CODE 6705–01–P 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

RIN 3064–AD47 

Final Statement of Policy on 

Qualifications for Failed Bank 

Acquisitions 

AGENCY: Federal Deposit Insurance 

Corporation (FDIC). 

ACTION: Final statement of policy. 

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 

ctopping@fdic.gov, Charles A. Fulton, 

Counsel, Legal Division, (703) 562–2424 

or chfulton@fdic.gov, Lisa Arquette, 

Associate Director, (202) 898–8633 or 

larquette@fdic.gov, or Mindy West, 

Chief, Policy and Program Development, 

Division of Supervision and Consumer 

Protection, (202) 898–7221 or 

miwest@fdic.gov. 

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 

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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2See http://www.fdic.gov/regulations/laws/ 

federal/2009/09comAD47.html. 

* * * 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. 

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 

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. 

Cross Guarantees 

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. 

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. 

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 


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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. 

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 

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 

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 

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 

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 

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 

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. 

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 18- 

month 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 

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 

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. 

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 

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 

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 

designed to make compliance easier and 

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 

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 

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 

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: comments@fdic.gov. 

• 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, 

(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 


jlentini on DSKJ8SOYB1PROD with NOTICES
Federal Register / Vol. 74, No. 169 / Wednesday, September 2, 2009 / Notices 45449 

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 

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. 

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 


jlentini on DSKJ8SOYB1PROD with NOTICES