August 31, 2009

FDIC Releases Final Policy Statement Governing Private Equity Investments in Failed Banks

News from WilmerHale:

At its Board Meeting held last Wednesday, the FDIC issued its Final Statement of Policy on Qualifications for Failed Bank Acquisitions. As expected, the FDIC reduced the Tier 1 capital leverage ratio proposed for private equity investors investing in failed banks from 15% Tier 1 to 10% Tier 1 (but only common equity) to total assets. It also removed the “source of strength” requirement in an effort to make it easier for failing institutions to attract private equity buyers. However, the Final Statement retains many of the other elements in the original proposal with the goal of adequately protecting the failed institutions and the Deposit Insurance Fund.

The Final Statement makes clear that these requirements will apply only prospectively and will not apply to investors with 5% or less of the total voting power of an acquired institution. In a further attempt by the FDIC to encourage partnerships between private equity investors and depository institution holding companies (excluding shell holding companies) where the holding company has a clear majority interest in the acquired depository institution and an established record of success in operating such depository institutions, the Final Statement makes clear that it does not apply to investors in partnerships with such depository holding companies.

The FDIC retains the right to waive one or more of the 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.” The Final Statement will be reviewed by the FDIC within six months.