In April of 2015 Davenport Evans lawyer Charles D. Gullickson wrote an article on a then-pending regulatory change for smaller bank holding companies that we felt could impact a number of South Dakota community banks’ holding companies. Specifically, we wrote about action taken in the spring of 2015 by the Federal Reserve Board to raise the threshold for what qualifies as a “small” BHC under the Federal Reserve’s Small Bank Holding Company Policy Statement from $500 million in assets to $1 billion in assets. It is time to revisit that article, as “small” has now grown to $3 billion in assets.
The Fed’s action results directly from provisions in the Economic Growth, Regulatory Relief and Consumer Protection Act which Congress enacted on May 24, 2018. Section 207 of the Act directed the Federal Reserve to revise its Small Bank Holding Company Policy Statement to raise the qualifying threshold from $1 billion to $3 billion. In response the Federal Reserve on August 28, 2018, issued an “interim final rule” to do just that. The designation of the rule as “final” means that the rule became effective immediately when issued but as an “interim” rule it is still subject to the standard notice-and-opportunity-for-public-comment process that federal agencies are required to follow when they issue new regulations
Our 2015 article continues to provide an accurate summary of the Federal Reserve’s Policy Statement and its rationale – one can reread the 2015 article now but just think $3 billion every time the article refers to $1 billion.
Here are key takeaways for bank holding companies that are currently in the range of $1 billion to $3 billion in consolidated assets:
- The Federal Reserve’s capital adequacy regulations for BHCs (applied on a consolidated basis) no longer apply to BHCs in the $1 billion to $3 billion asset range.
- BHCs in this range have new and enhanced flexibility to use leverage for acquisitions, subject to the leverage restrictions described in our 2015 article.
- BHCs in this range can take advantage of simpler Call Report requirements, the same available prior to this new rule to BHCs under $1 billion in assets.
When the Federal Reserve raised the small bank holding company threshold in 2015 from $500 million to $1 billion in assets some financial organizations at the time were advocating for a threshold as high as $5 billion. It would not be surprising if at some point down the road regulators and Congress revisit again the question of what is “small” enough for the Federal Reserve’s Small Bank Holding Company Policy Statement.
Davenport, Evans, Hurwitz & Smith, LLP, located in Sioux Falls, South Dakota, is one of the state’s largest law firms. The firm’s attorneys provide business and litigation counsel to individuals and corporate clients in a variety of practice areas. For more information about Davenport Evans, visit www.dehs.com.