In July, the FDIC solicited public comments on a proposed policy statement regarding failed bank acquisitions. This policy statement defined new regulations applicable to certain investors of failed banks, with respect to:
• Capital commitments
• The investor’s role as a source of strength for the acquired institution
• Cross guarantees
• Affiliate transactions
• Secrecy law jurisdictions
• Continuity of ownership
• Disclosures
Comments The FDIC received 3190 form letters in support of the policy changes and 61 individual comment letters. A common observation among these comments was that the new requirements would impede the flow of private capital into the banking industry. Specifically, commenters found the 15 percent Tier 1 leverage ratio, the source of strength requirement, and the cross guarantee requirement to be particularly restrictive. Commenters argued that these provisions would competitively disadvantage the banks acquired by private investors. Given this disadvantage, private investors would be more likely to:
• stay out of banking altogether, or
• engage in aggressive business activities after the acquisition has closed.
Commenters also noted that private equity fund agreements typically prohibit source of strength and cross guarantee commitments as described by the FDIC’s proposal. The cross guarantee requirement is particularly distasteful because it would require the investor to risk unrelated and legally separate assets.
Provisions that keep private capital out of the banking industry would ultimately impact the DIF negatively, if the result is a greater number of bank failures.
Other commenters, however, supported the increased restrictions on private equity firms, citing the need to keep risky behavior out of the banking system.
Final provisions In consideration of the comments, the FDIC affected several changes to the proposed policy statement, including the following hot points:
• Clarification regarding the firms to which the policy statement applies. The policy statement will not apply to investors in partnership with depository institution holding companies, where the holding company has “a strong majority interest in the acquired bank or thrift and an established record for successful operation of insured banks or thrifts.” Investors holding no more than 5 percent of total voting power are also excluded.
• Reduction of initial capitalization requirements. The acquired bank must now open with a Tier 1 common equity/total assets ratio of 10 percent. And, this minimum ratio must be maintained for three years.
• Removal of the source of strength requirement.
• Narrowing of the cross guarantee provision. Cross guarantees will only be required when the affected investor group owns more than one institution and those institutions are at least 80 percent owned by common investors.
• Update to the definition of “affiliate” with respect to affiliate transaction provisions. The final statement defines “affiliate” as: “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.”
Read the summary of comments and complete list of changes made to the final policy statement here:
http://www.fdic.gov/news/board/Aug26no1.pdf
Sanderson
State Bank, Sanderson, Texas, was closed today by the Texas Department of
Banking, and the Federal Deposit Insurance Corporation (FDIC) was named
receiver. To protect the depositors, the FDIC entered into a purchase and assumption
agreement with The Pecos County State Bank, Fort Stockton, Texas, to assume all
of Sanderson State Bank's deposits, including those that exceeded the deposit
insurance limit.
Sanderson
State Bank's sole office will reopen on Monday as a branch of The Pecos County
State Bank. All depositors of the failed bank will automatically become
depositors of The Pecos County State Bank. Deposits will continue to be insured
by the FDIC, so there is no need for customers to change their existing banking
relationship to retain their deposit insurance coverage. Customers of the
failed bank should continue to use the same banking location until they receive
further information from The Pecos County State Bank.
Over the
weekend, depositors of Sanderson State Bank will have access to all of their
money by writing checks or using ATMs or debit cards. Checks drawn on the bank
will continue to be processed. Loan customers should continue to make their
payments as usual.
As of
December 3, 2008, Sanderson State Bank had total assets of $37 million and
total deposits of $27.9 million. The Pecos County State Bank agreed to assume
all of the deposits for a .55 percent premium. In addition to assuming all of
the failed bank's deposits, The Pecos County State Bank will purchase approximately
$3.8 million of assets, and have the option to purchase owned premises and
equipment. The FDIC will retain the remaining assets for later disposition.
Customers who
have questions about today's transaction can call the FDIC toll-free at
1-866-782-1766. This phone number will be operational this evening until 9:00
p.m., CST; on Saturday from 9:00 a.m. to 6:00 p.m., CST; on Sunday from noon
until 6:00 p.m., CST; and thereafter from 8 a.m. to 8 p.m., Central. Interested
parties can also visit the FDIC's Web site at http://www.fdic.gov/bank/individual/failed/sanderson.html.
The FDIC
estimates that the cost to the Deposit Insurance Fund will be $12.5 million.
The Pecos County State Bank's acquisition of all the deposits was the least
costly resolution for the FDIC's Deposit Insurance Fund compared to
alternatives. Sanderson State Bank is the 25th bank to fail in the nation this
year, and the second in Texas. The last bank to be closed in the state was
Franklin Bank, SSB, Houston, TX, on November 7, 2008.
Haven Trust
Bank, Duluth, Georgia, was closed today by the Georgia Department of Banking and
Finance, and the Federal Deposit Insurance Corporation (FDIC) was named
receiver. To protect the depositors, the FDIC entered into a purchase and
assumption agreement with Branch Banking & Trust (BB&T), Winston-Salem,
NC, to assume all of Haven Trust's deposits, including those that exceeded the
insurance limit.
The four
branches of Haven Trust will reopen on Monday as branches of BB&T. All the
depositors of Haven Trust will automatically become depositors of BB&T.
Deposits will continue to be insured by the FDIC, so there is no need for
customers to change their existing banking relationship to retain their deposit
insurance coverage. Customers of the failed bank should continue to use their
existing branches until they receive further information from BB&T.
Over the
weekend, depositors of Haven Trust can access all their money by writing checks
or using ATMs or debit cards. Checks drawn on the bank will continue to be
processed. Loan customers should continue to make their payments as usual.
As of December
8, 2008, Haven Trust had total assets of $572 million and total deposits of
$515 million. BB&T agreed to assume all of the deposits for $112,000. In
addition to assuming all of the failed bank's deposits, BB&T will purchase
approximately $55 million of the failed bank's assets. The FDIC will retain the
remaining assets for later disposition.
Customers who
have questions about today's transaction can call the FDIC toll-free at
1-866-782-1402. This phone number will be operational this evening until 9
p.m., EST; on Saturday from 9 a.m. to 6 p.m., EST; on Sunday from noon to 6
p.m., EST; and thereafter from 8 a.m. to 8 p.m., EST. Interested parties can
also visit the FDIC's Web site at http://www.fdic.gov/bank/individual/failed/haventrust.html.
It is
important to note that neither the FDIC as receiver nor BB&T as the
acquiring institution will e-mail customers of Haven Trust asking them to
validate their deposits or to request personal, confidential information, such
as account numbers, social security numbers or driver's license numbers.
Customers will not be asked to revalidate passwords, deposit accounts or
deposit insurance. If customers receive e-mails asking for such personal
information, they should consider the e-mails fraudulent and should not
respond.
The FDIC
estimates that the cost to the Deposit Insurance Fund will be $200 million. The
BB&T's acquisition of all deposits was the "least costly"
resolution for the FDIC's Deposit Insurance Fund compared to alternatives.
Haven Trust is the 24th bank to fail in the nation this year, and the fifth in
Georgia. The last bank to be closed in the state was First Georgia Community
Bank, Jackson, GA, on December 5, 2008.