Many smaller banks in the United States recently received a bit
of surprising news. The banking agencies published their notices of
proposed rulemaking relating to the bank capital requirements. The
Basel III NPR made clear that only the smallest banks in the United
States would be exempt from compliance with the heightened
regulatory capital requirements of Basel III. Over time, smaller
banks will need to raise capital in order to meet the new
requirements that will be phased in over the next few years.
Historically, smaller banks have found it difficult and expensive
to raise capital. Many smaller banks were not able to raise capital
on their own, and turned to issuances of trust preferred
securities, which then got pooled with trust preferred securities
issued by other small banks, and sold (on a packaged basis) to
investors. Trust preferred securities will no longer be eligible
for favorable regulatory capital treatment. Smaller banks must
offer common stock, or non-cumulative perpetual preferred stock, or
REIT preferred stock. Memories are probably too fresh to accept a
new pool instrument, even if it were a simpler pooled
non-cumulative preferred. A few JOBS Act changes may provide some
new alternatives for smaller banks. First, small banks might want
to consider issuing securities at the bank level and rely on the
exemption from registration offered by Section 3(a)(2). A national
bank generally relies on Part 16 of the Office of the Comptroller
of the Currency's (the "OCC") regulations in
connection with offerings pursuant to Section 3(a)(2). The Part 16
regulations generally require that a national bank offer and sell
its securities pursuant to a registration statement filed with the
OCC, unless there is an available exemption. An exemption from the
registration requirement is available if the national bank offers
and sells its securities in transactions that comply with the
Regulation D safe harbor or in Rule 144A qualifying transactions.
Generally, banks have structured their offerings of securities to
comply with the Regulation D safe harbor in order to avoid the OCC
registration statement requirement. Once the SEC promulgates rules
to permit general solicitation and general advertising in
connection with Rule 506 offerings and resales under Rule 144A,
banks should have an easier time raising capital. Banks will be
able to offer securities at the bank level in 3(a)(2) offerings,
using general solicitation, provided that actual investors are
verified to be accredited investors. If the institution were to
issue securities at the bank holding company level instead (for
which the 3(a)(2) exemption is not available), this new flexibility
in relation to private offerings is still quite useful.
Because of the generality of this update, the information
provided herein may not be applicable in all situations and should
not be acted upon without specific legal advice based on particular
situations.
In November 2012, the U.S. District Court for the Eastern District of New York preliminarily approved a settlement agreement in the In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation.
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