WASHINGTON (Dow Jones)–In an effort to expand the number of potential buyers in the market, U.S. banking regulators have introduced a charter program to allow private-equity and other investors to buy struggling financial institutions.
The Office of the Comptroller of the Currency, which oversees charters and assures the soundness of national banks, said Friday it has granted the first conditional preliminary approval of a “shelf charter.” This charter would let a group of Texas investors purchase either a failed bank from the FDIC or a bank identified as troubled by its primary regulator. Only chartered financial institutions can bid to acquire such institutions.
Under the shelf charter, the investors must form a bank holding company, make arrangements to obtain FDIC insurance and within 18 months identify a failed financial institution it would like to purchase.
The investors who received the first shelf charter have a combined $1.38 billion in assets immediately available for a transaction, according to correspondence between the group and the OCC. The move comes at a time when the FDIC is facing a growing number of bank failures as institutions grapple with a global credit crisis that has brought down some of the industry’s most prominent names and wreaked havoc with the share prices of others.
So far this year, 19 banks have failed, including Washington Mutual, which in September became the largest bank failure in U.S. history.
By allowing non-bank investors to obtain shelf charters, the regulators aim to minimize losses to the FDIC’s dwindling deposit insurance fund, which after the failure of IndyMac Bank in July fell to $45.2 billion – its lowest level in more than a decade.
“This is a new tool to enable additional equity to come into troubled institutions,” said Julie L. Williams, chief counsel for the OCC.
Williams said interest from private-equity firms in purchasing whole institutions spurred the change. “A number of private-equity sources were interested in making whole bank investments,” she said. “In order to do that, we had to come up with a new way of doing our chartering process.”
Meena Thiruvengadam, Dow Jones Newswires