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OCC Announces "Shelf Charter" Expanding Access to FDIC's Bidding Process for Financial Institutions

November 25, 2008

On Friday, November 21, 2008, the Office of the Comptroller of the Currency ("OCC") announced approval of a new type of national bank charter intended to facilitate investment into or acquisition of troubled or failed banks and thrifts.  Under the new process, the OCC grants preliminary approval to investors for a national bank charter which remains inactive, or “on the shelf”, until such time as the investor group is in a position to acquire a troubled institution. 

Generally, private investors who do not already hold a financial institution charter must be approved for a new banking charter prior to being eligible to participate in FDIC auctions of troubled or failing banks or thrifts.  Approval of a new charter generally requires significant amounts of time and a specific business plan, which has served as a major disadvantage for private investors seeking to participate in fast paced auctions of failing or failed institutions.  The new process announced by the OCC allows for potential investors to receive preliminary approval of a charter based on a streamlined business plan.  The charter remains on the shelf for up to 18 months following preliminary approval by the OCC.  The availability of this new type of charter should serve to minimize current disadvantages faced by potential investors, and thereby expand the pool of bidders for failing institutions. 

In order to receive preliminary approval, an organizing group must apply for the shelf charter with the OCC.  The OCC will evaluate the following items in reviewing an application:

  • the qualifications of the proposed management team;
  • the sources and amount of capital that would be available to the bank (including the ownership structure); and
  • a streamlined business plan that describes how an acquired bank will be operated.

Following review of the application, the OCC may grant conditional preliminary approval of a national bank charter, subject to certain conditions and requirements.  These include the requirement that the applicant submit a detailed operating plan, satisfactory to the OCC, when the bank targets a specific institution for acquisition.  If the proposed acquisition is found to be acceptable to the OCC, and if the FDIC approves the bid, final charter approval can be granted, together with final approval of deposit insurance by the FDIC.  The applicant may also be required to enter into a written agreement with the OCC immediately following consummation of a proposed acquisition. 

While the new shelf charter provides a means for private investors to access FDIC auctions, potential investors must still consider other issues attendant to owning a national bank, including the possible need to register with the Board of Governors of the Federal Reserve System as a bank holding company.