Recently, the Office of the Comptroller of the Currency (the “OCC”), the primary regulator of national banks, and the Federal Deposit Insurance Corporation (the “FDIC”), created a new process that will allow parties that do not already own a bank charter to obtain a national bank “shelf” charter and conditional approval for deposit insurance which will enable them to bid on troubled institutions from the FDIC. The conditionally approved bidders will also need to obtain conditional approval to become a bank holding company from the Federal Reserve Board.
This memorandum provides guidance on how to apply for a national bank shelf charter and obtain conditional approval for FDIC deposit insurance and to establish a bank holding company that will allow the parties to qualify for the FDIC’s failing institutions bidders list and participate in receivership auctions. It should be noted that a shelf charter is designed primarily to facilitate the assumption of liabilities and the purchase of assets from troubled institutions and is not itself a live charter or a vehicle to acquire healthy institutions. However, many of the steps described below would also be necessary to obtain a de novo bank charter and FDIC deposit insurance. In addition, although the steps below describe the OCC’s application process, it can be expected that other chartering authorities, such as the Office of Thrift Supervision (for federal thrifts) and some state banking departments (other than Georgia) would be prepared to approve comparable shelf charters. Therefore, it is important to decide early in the process whether to pursue a shelf charter from one or more state or federal banking regulators.
Identify Organizing Group and Directors
As a threshold matter, the organizers of the proposed Bank need to be identified and complete an Interagency Biographical and Financial Report (the “IBFR”). The IBFR is used by all federal banking regulators and most state regulators. Initially, the IBFRs will be submitted to the Federal Reserve in order to begin the background checks associated with a holding company application. The IBFR’s can be submitted in advance of the holding company application, and it is advisable to do so because of potential processing delays. The IBFR form is available at www.federalreserve.com
The organizing group for a national bank must be composed of five or more persons. These individuals normally would also serve as the Bank’s initial board of directors. At least some of the organizers should be familiar with national banking laws and regulations and have prior directorship experience.
Identify Senior Management and the CEO
This is the most critical step. The OCC will grant a shelf charter application (or a de novo charter) only to a management team, including the proposed directorate, that it considers strong. Strong management teams are usually characterized by high-caliber executive officers that have the relevant experience necessary to operate a national bank successfully. Therefore, it is critically important that the organizers identify at the beginning of the process an available management team with sufficient experience operating a bank. A proven track record in bank mergers and acquisitions is also desirable, and would be viewed favorably by the FDIC when bidding to purchase a failing institution.
Identify Sources of Capital
The organizers will need to identify the sources and amount of capital that would be available to acquire and recapitalize a potential target institution in the FDIC auction process.
Prefiling Meetings
Prior to submitting the shelf charter application, the organizing group will be required to hold a prefiling meeting with the OCC’s Licensing Staff. The FDIC generally participates in the prefiling meeting along with the OCC. Prefiling meetings can usually be scheduled on 30 days’ notice. Prior to the meeting, the organizers will need to submit briefing materials to the OCC that include: (i) a brief description of the proposal; (ii) biographical information for each member of the organizing group; (iii) identification of the CEO; (iv) a summary of insider transactions; and (v) the proposed amount of capital and the subscription method. All organizers will be expected to attend the prefiling meeting.
In addition, a prefiling meeting should be arranged with the appropriate Federal Reserve District Bank to become acquainted with the Federal Reserve’s application requirements. At this point, the Federal Reserve has not provided any written guidance with respect to the application process for holding companies that will acquire a bank by means of a shelf charter. Based on our informal discussions with representatives at the Atlanta Federal Reserve, we understand that the application process will be similar to that applied to a standard bank holding company application, including the ability to file in advance the IBFRs.
Overview of Shelf Charter Application Process
Following the prefiling meeting, the Bank’s organizers will submit a streamlined Interagency Charter and Federal Deposit Insurance Application (the “Application”) to the OCC for approval to receive a shelf charter and to the FDIC for conditional approval for deposit insurance. A copy of the Application can be found at www.occ.gov. The Application consists of two parts — the publicly filed Application and the confidential volume. The confidential volume will include the Bank’s streamlined business plan and the IBFRs for each organizer and executive officer. As discussed in more detail above, the OCC will evaluate the qualifications of the proposed management team, the sources and amount of capital that will be available to the Bank, and the streamlined business plan that describes how the hypothetical target bank will be operated. In addition to the aforementioned factors, the FDIC will also consider whether the proposed business plan is compliant with the Community Reinvestment Act. A separate application to become a bank holding company will be filed with the Federal Reserve.
Following review of the Application, the OCC will grant conditional preliminary approval for a national bank charter and the FDIC will issue conditional approval for deposit insurance. The Bank will then be entitled to review the FDIC’s list of troubled or failing institutions and to submit bids for such institutions. Once a potential acquisition is identified, the Bank will submit an Acquisition Business Plan to the OCC which will include such information as the Bank’s market area, the Bank’s assessment of existing management, plans to mitigate deposit run-off, and plans for future operations and projected balance sheets over a three year period. If the bid is approved, the OCC will approve the final charter and the FDIC will grant deposit insurance. Approval to become a bank holding company from the Federal Reserve will also be required. Following receipt of all final approvals, the Bank will need to submit a comprehensive long-term business plan to the OCC. If the bid is not approved, the shelf charter remains available to the Bank for 18 months from the conditional approval date, during which time it may make bids on other institutions.
For more information, please contact the Firm’s Financial Institutions Group.