On October 20, 2008, the FDIC published Financial Institutions Letter FIL-109-2008 that contains some useful guidance for community banks regarding the completion of TARP Capital applications.

Some of the highlights are:

  • The FDIC notes that the Treasury Department is aware of potential legal and tax obstacles for non-public, Subchapter S, or mutual corporate structure and states that it is “investigating possible alternatives.”  The FDIC provides that applicants should “describe any structural conditions that may not comply” with the announced plan.  While we hope that more details are announced for smaller reporting companies, public but non-listed companies, private companies and Subchapter S corporations, this approach allows many banks to move forward with the application process.  Please see our list of concerns and issues with the Public Term Sheet for TARP Capital.
  • While the Federal Reserve will be the primary federal regulator to consider applications for all banks with bank holding companies, holding companies should also submit the application to the appropriate federal banking regulator for their subsidiary banks.
  • Institutions with less than $1 billion in assets that serve low-to-moderate income populations and underserved communities and that have been impacted by Fannie Mae or Freddie Mac stock depreciation may receive specialized consideration.  Based on this guidance, we would recommend that all institutions that were impacted by Fannie Mae or Freddic Mac stock depreciation should make special note of that in their application materials.
  • FDIC encourages all state nonmember institutions to “seriously consider” applying for TARP Capital.

An attorney in one of the OCC’s regional offices has told us that he would assume that the OCC will take a similar position to that of the FDIC.