Boardman & Clark LLP—Banking Group

• ERISA claims
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• New Wisconsin Uniform Securities Act
• Legal Considerations in Downsizing
• Remote Deposit Capture

Good News for Subchapter S and Mutual Banks and Bank Holding Companies

The Federal Reserve has finally issued its interim final rule on the treatment of subordinated debt securities issued by Subchapter S and mutual banks and bank holding companies to the Treasury as part of the Capital Purchase Plan. The interim rule can be found here.

The Fed announced that it would treat all subordinated debt securities issued to the Treasury as Tier 1 capital for purposes of the Fed's Capital Guidelines. The Fed, though, added one new wrinkle to the announcement. While the entire amount of the debt securities issued to the Treasury would be counted as Tier 1 capital, the amount of the new debt issued to the Treasury would also be included in the amount of other restricted core capital elements, including trust preferred securities, that could be included in Tier 1 capital. Each financial institution will have to review the effect of this limitation on its own capital structure but the effect may be to diminish the effect of the issuance of debt securities as tier 1 capital.

The Fed also helped subchapter S bank holding companies that are small bank holding companies for purposes of the Fed's Small Bank Holding Company Policy Statement. The Fed stated that, for purposes of the Policy Statement, a small bank holding company doesn't have to count as debt the debt securities it issues to the Treasury . The practical effect is that the holding company can issue the new debt to the Treasury without exceeding the debt-to-equity ratios for allowing the issuance of dividends to its shareholders.

The interim rule will be effective immediately upon publication although it is subject to comments.