WASHINGTON—The Federal Reserve Board has made it easier for more banks and thrifts to finance acquisitions.
The Fed issued a final rule to expand the applicability of its Small Bank Holding Company Policy Statement and also applied it to certain savings and loan holding companies. The move—which exempts more FIs from certain aspects of Basel III—raised the asset threshold for institutions covered by the policy from $500 million to $1 billion in total consolidated assets. Institutions covered under the policy can use debt to finance up to 75% of the purchase price of an acquisition.
According to Federal Reserve year-end 2014 data, there are 4,137 small banks and thrifts below $1 billion.
The policy statement facilitates the transfer of ownership of small community banks and savings associations by allowing their holding companies to operate with higher levels of debt than would normally be permitted, the Fed stated in a release. While holding companies that qualify for the policy statement are excluded from consolidated capital requirements, their depository institution subsidiaries continue to be subject to minimum capital requirements.
The final rule also expands the application of the policy statement to savings and loan holding companies. All firms must still meet certain qualitative requirements, including those pertaining to nonbanking activities, off-balance sheet activities, and publicly-registered debt and equity the Fed stated.
“Certainly, if the banks are moving toward the covered institutions on this rule to be banks and thrifts now up to $1 billion, I would think the credit union community would want to understand this and determine what is reasonable parity for them. Enabling more bank mergers will have a direct impact on local bank efficiencies, as they are able to more easily add scale through merger—adding scale on an even more easy basis than what credit unions are currently able to do,” said Peter Duffy, managing director at Sandler O'Neill, New York.