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From Banking and Finance Law Daily, April 9, 2015

Fed eases rules to help sales of smaller banks, thrifts

By Richard A. Roth, J.D.

The Federal Reserve Board is adopting amendments to its policy statement that gives special treatment to small bank holding companies in order to facilitate the sale of small community financial institutions. The Small Bank Holding Company Policy Statement, found in Appendix C of Reg. Y—Bank Holding Companies and Change in Bank Control (12 CFR Part 225), is being amended to double the permissible size of covered holding companies and to apply to savings and loan holding companies as well as BHCs.

According to the Fed, the policy statement facilitates acquisitions by allowing an acquiring holding company to operate with a higher level of debt than otherwise would be permitted. This is necessary because smaller holding companies often do not have the access to equity financing enjoyed by larger holding companies, which requires them to finance acquisitions using more debt, the Fed’s notice says.

The holding company does not need to meet the ordinary consolidated capital requirements; however, its subsidiary depository institutions must continue to meet minimum capital requirements. The amendments were proposed in January 2015 (see Banking and Finance Law Daily, Jan. 30, 2015).

Qualifications. Under the amended policy statement, BHCs and SLHCs with total consolidated assets of up to $1 billion are permitted to finance up to 75 percent of an acquisition using debt as long as they are not engaged in significant nonbanking activities, do not conduct significant off-balance sheet activities, and do not have a material amount of outstanding registered debt or equity securities other than trust preferred securities. In addition, there are four ongoing requirements:

  1. The holding company must pay its debt in a way that will allow the debt to be retired within 25 years of being incurred.

  2. The holding company must reduce its debt-to-equity ratio to no higher than .3-to-1 within 12 years of the debt being incurred.

  3. Each subsidiary insured depository institution must be kept well capitalized.

  4. The holding company may not pay any dividends until it has reduced its debt-to-equity ratio to no higher than 1-to-1.

The amendments will take effect 30 days after they are published in the Federal Register.

MainStory: TopStory BankHolding FederalReserveSystem

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