Alert November 25, 2008

OCC Grants Its First Conditional Preliminary Approval of a National Bank “Shelf-Charter”

The OCC granted a conditional preliminary approval of a new type of national bank non-operating “shelf‑charter,” thereby helping to expand the pool of potential equity and other investors in troubled banks and thrifts. 

Currently, potential investors are required to control an operating bank or thrift in order to have access to the FDIC’s non-public list of failing or troubled banks and thrifts and to participate in the FDIC-run auctions for these troubled institutions.  By granting preliminary approval for a national bank “shelf-charter”, the OCC effectively permits the participation of new investors and the infusion of new equity capital by allowing these new investors to participate in a process that, previously, only allowed access to investors already holding bank charters. 

Under this new charter mechanism, the OCC initially evaluates the qualification of the proposed management team, the sources and amount of capital that would be available to the troubled institution and a “streamlined” business plan that discusses the operation of the acquired institution.  The OCC may then grant conditional preliminary approval of a national bank charter, thereby, permitting the investor to participate in the FDIC’s process.  The OCC is likely to subject the final approval of the preliminary charter to various conditions and requirements, including submission of a more detailed operating plan satisfactory to the OCC.  A preliminary charter remains “on the shelf” for up to 18 months and can be used for multiple bids during that period. 

If the holder of a “shelf-charter” is selected by the FDIC to acquire a failing or troubled bank, and the OCC accepts the detailed operating proposal, the OCC may then remove the preliminary charter from “the shelf” and grant final approval of the national bank charter subject to final approval of deposit insurance by the FDIC.

While certainly showing some progress with the OCC, an investor who participates in a “shelf-charter” process must also carefully consider whether it may required to register as a bank holding company, particularly given the FRB’s views of “whole bank” acquisitions, as well as whether it will remain subject to other regulatory requirements.