FEC Corporate & Financial Services Alert: Federal Reserve Finalizes Relief For Small Bank Holding Companies As we reported in January, Congress recently directed the Federal Reserve to revise its Small Bank Holding Company Policy Statement1 by increasing the applicable qualifying asset threshold from $500 million to $1 billion. The Policy Statement ...
FEC Corporate & Financial Services Alert: Federal Reserve Finalizes Relief For Small Bank Holding Companies
As we reported in January, Congress recently directed the Federal Reserve to revise its Small Bank Holding Company Policy Statement1 by increasing the applicable qualifying asset threshold from $500 million to $1 billion.
The Policy Statement was issued in 1980 to facilitate the transfer of ownership of small community-based banks. While the Fed has generally discouraged the use of debt by bank holding companies to finance acquisitions, the agency recognizes that small bank holding companies have less access to equity financing than larger companies and those acquisitions often require the use of acquisition debt. Accordingly, the Fed adopted the Policy Statement to permit the formation and expansion of small bank holding companies with debt levels that are higher than typically allowed for larger holding companies. Under the final rule, to become effective next month, a holding company with less than $1 billion in total consolidated assets may now qualify under the Policy Statement. This rule change will expand the number of companies that can utilize debt levels of up to 75% of the purchase price in acquisitions.
The rule does not modify other qualitative requirements of the Policy Statement which include that the company (i) not be engaged in significant nonbanking activities either directly or through a nonbank subsidiary, (ii) not conduct significant off balance sheet activities, including securitization and asset management or administration, directly or through a nonbank subsidiary, and (iii) not have a material amount of debt or equity securities outstanding that are registered with the SEC. Additionally, the Fed left unchanged the requirement that a small holding company achieve a debt-to-equity ratio of .30:1 within 12-years of incurring acquisition debt.
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1 12 CFR 225 (Appendix C).
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