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FDIC Chairman Sheila Bair has informed the Florida Bankers Association that higher CAMELS rated banks can apply for the Treasury Capital Program, but it will subject those banks to further regulatory scrutiny.
Another regulator with a federal banking agency informed the Florida Bankers Association as follows:
CAMELS ratings are not the sole determinant and each situation will be looked at individually. Based on what we know thus far, we think many 3-rated banks will meet the standards as long as there are no mounting deficiencies that suggest future prospects are poor or that additional downgrades are likely. Further, it is possible that certain 4-rated banks will qualify, as long as conditions are stable or improving. We also think that a larger number of troubled banks might warrant TARP approval if there is an accompanying injection of private capital.
In addition to the above, banks with less than satisfactory CRA ratings are not likely to be approved. Further, banks with certain risk factors such as high concentrations of construction and development loans will be subject to closer scrutiny, although that will not necessarily disqualify them.
Although ultimate approval for troubled banks remains unlikely, it is very clear that regulators want troubled banks to present proposals for consideration under the TARP Capital plan, and that no regulator wants to be blamed for erroneously pushing a struggling bank out of the program.
The rule is immediately effective, although comments will be taken for a 15-day period.
The FDIC strongly encourages banks to remain in the program.
Opt Out Information. Any institution desiring to opt out must do so by 11:59 p.m. on November 12, 2008. An institution may opt out of the FDIC’s guarantee of either or both the newly-issued senior unsecured debt or noninterest-bearing transaction deposit accounts. The FDIC will post on its website a list of those entities that have opted out of either component, and each eligible entity must make clear to relevant parties whether it has chosen to participate in the program.
All insured depository institutions must post a prominent notice in the lobby of its main office, and each branch must clearly indicate whether the institution is participating in the transaction account guarantee program. If it is, the notice must state that funds held in noninterest-bearing transaction accounts are insured in full by the FDIC. If the institution uses sweep arrangements, the institution must disclose those actions to the affected customers and clearly advise them, in writing, that such actions will void the FDIC’s guarantee. (However, note the exception below for sweeps to noninterest-bearing savings accounts.)
Newly Issued Senior Unsecured Debt Guarantee Information. Senior unsecured debt generally includes federal funds purchased, promissory notes, commercial paper, and unsubordinated unsecured notes. Senior unsecured debt does not include, among other instruments, obligations from guarantees or other contingent liabilities, derivatives, derivative-linked products, debt paired with any other security, convertible debt, capital notes, the unsecured portion of otherwise secured debt, or negotiable certificates of deposit.
The FDIC will guarantee newly issued unsubordinated debt in a total amount up to 125 percent of the par or face value of the senior unsecured debt outstanding, excluding debt extended to affiliates, as of September 30, 2008, that was scheduled to mature before June 30, 2009. The maximum amount guaranteed is calculated for each individual participating entity in a holding company structure and cannot be transferred between a bank and its holding company or between banks in a multi-bank holding company structure. All entities will be required to provide the amount of outstanding senior unsecured debt as of September 30, 2008 to the FDIC via FDIConnect.
Silverton Bank has prepared an Overview of the TARP Capital Purchase Program.
Silverton Capital Corporation, the investment banking subsidiary of Silverton Bank, can provide an analysis for your institution that addresses your cost of capital and the effect that participation in the TARP Capital program would have on your earnings per share and book value per share. For more information, contact Frank Brown at email@example.com or (770) 805-2152.
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We have heard from several federal and state banking regulators that the factors that may be determinative in a bank’s application for TARP Capital are continuing to change. We understand that federal regulators now want a “with” and “without” projection for each application, and want larger banks to indicate a willingness to buy failed and failing banks (to this end we’ve been told of large client that was given a physical list of potential banks to be bought).
One of our clients has a residual Fair Lending issue, but was told that since they have a Satisfactory CRA rating, the Fair Lending issue would not prevent the bank from receiving TARP Capital. That client was also told that the projections should show a CRE concentration of less than 300%. Finally, the client was told to file its Application as a “Confidential Draft” to avoid public scrutiny.
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:
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.
Our September 25, 2008 Client Alert analyzes the impacts of the Federal Reserve’s new policy statement easing the limitations on private equity investments in banks and bank holding companies.