This article was originally published 9 July, 2009

This update summarizes recent developments from the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) regarding private capital investments in failed depository institutions.

FDIC Proposed Policy Statement

On July 2, 2009, the FDIC released for public comment a proposed Statement of Policy on Qualifications for Failed Bank Acquisitions (the Proposed Policy Statement). The Proposed Policy Statement generally sets forth proposed requirements for private capital investors (Investors) that seek to acquire or invest in failed depository institutions (Target Institutions). Some of the FDIC's proposed requirements are quite onerous and may make Target Institution acquisitions or investments unattractive to Investors. In addition, there are significant ambiguities surrounding the scope of the Proposed Policy Statement. The FDIC is seeking public comment on all aspects of the Proposed Policy Statement. Private equity funds, hedge funds and other investment funds that are contemplating investments in Target Institutions should carefully review the Proposed Policy Statement and consider whether to comment. The FDIC intends to publish the Proposed Policy Statement in the Federal Register on July 9, 2009, and for comments to be due on August 10, 2009.

As a threshold matter, the scope of the Proposed Policy Statement is vague. The Proposed Policy Statement would apply to "private capital investors," but this key term is undefined. Investors that "serve as responsible custodians of the public interest" would be exempt from the Proposed Policy Statement's requirements, but the FDIC provided no further guidance regarding this cryptic phrase. The proposal also contains an exemption for certain de minimis investments in shell holding companies that are controlled by other entities, but, again, no test or standard is articulated. In addition, any investment in a bank or thrift holding company that "has come into existence or has been acquired by an Investor" at least three years prior to the date of the policy statement would not be subject to the FDIC's proposed requirements. It will be critical for the FDIC to clarify the coverage of the Proposed Policy Statement before it is finalized.

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