TARP Capital Application Process

October 28, 2008

Authored by: Robert Klingler

We have been speaking with all of the regional Southeastern federal banking regulators, and we have received significant input on the TARP Capital Application Process.   (Institutions in other areas of the country should confirm the advice with their corresponding federal regulators; we have no reason to believe the advice will be different, but have only talked with the regulators located in the Southeast.)

Submission of Application

  • Bank holding companies should submit their application to the Federal Reserve, with a copy to the primary federal regulator for their lead (i.e. largest) subsidiary bank.  The Federal Reserve intends to defer decisions on any shell holding companies to the primary federal regulator of the lead subsidiary bank.
  • The Federal Reserve (at least Atlanta) requests that applications be emailed to them, with a signed hard copy to follow.  Processing will begin upon receipt of the emailed application.
  • Applications to the Atlanta Federal Reserve should be emailed to Ms. Nicky Hennings (nicky.hennings@atl.frb.org) with a copy to Ms. Kate Gaboardi (kate.gaboardi@atl.frb.org).  The hard copy should be sent in accordance with standard Atlanta Federal Reserve rules.
  • Applications to the FDIC should also be emailed, based on the state of the institution’s primary office:
  • State banks should also carbon copy their state banking Commissioner.   The Commissioners are taking an active and helpful role in supporting the Capital Process and Regional FDIC and Fed (for member banks) have indicated an intent to communicate with State Commissioners before making a recommendation to the Treasury.
  • Applications for all national banks should be emailed to HQ.Licensing@occ.treas.gov, with questions directed to Fred Finke at fred.finke@occ.treas.gov.
  • Applications for federal thrifts and their holding companies must be submitted to OTS through secure e-mail.  The Atlanta contact person is Yashica Pope at yashica.pope@ots.treas.gov, with copies to the Review Examiner or AD for the institution.

Supplemental Information with Application

  • The Atlanta office of the FDIC advised that they are following up with each applicant when additional information (beyond the application) is necessary.  Whether additional information is necessary, and the contents of such information, may vary by applicant.  The FDIC advises banks to file the application without supplemental information, and the FDIC will subsequently contact the institution regarding what additional information is needed.  Update 10/29/08: See the supplemental spreadsheet requested by the FDIC.
  • If you have supplemental information ready to submit with your application, we do not believe there is any harm in doing so, but it is not required as part of the application.  Should the supplemental information be lengthy, it may be better to state that such information is available upon request.
  • The regulators are divided as to whether the application should be submitted in draft and/or with a confidential treatment request, and whether the application is subject to the Freedom of Information Act.
  • Until concrete guidance is given, and potentially even then, we recommend that applications be submitted in draft form (especially for private companies that do not anticipate participating under the terms of the public term sheet) and with a confidential treatment request for any confidential information.  See more information about requesting confidential treatment.
  • We do recommend that counsel review the application before submission to include suggested improvements that may be available.

CAMELS Ratings and TARP Capital

  • The federal regulators unanimously told us that institutions should not forego an application regardless of their CAMELS ratings.
  • The Atlanta FDIC gave us the following framework that it would use for analyzing TARP applications:
    • CAMELS rating 1 or 2 – Submit the application saying that you hope to make prudent loans and are available to consider problem banks, if appropriate.
    • CAMELS rating 3 – Justify the long-term viability of the institution.  Viability means the ability to earn money operationally (pre-tax and pre-provision, a.k.a. “Pre-Pre” earnings) and be able to survive.
    • CAMELS rating 4 – Justify the long-term viability of the institution, with viability including new capital and a new business plan.
    • CAMELS rating 5 – Justify the long-term viability of the institution, which includes all of the above plus new management.
  • The FDIC stated that this breakdown was designed to be an example of the kind of analysis that the FDIC will perform.
  • We believe that 3’s will generally be eligible and treated closer to 1’s and 2’s, while 4’s and 5’s may also be eligible given the right circumstances.
  • In an acquisition, both the acquirer and acquiree can receive TARP Capital up to 3% of their respective risk weighted assets.
  • The regulators all said that CRE concentrations are not a bar to receiving TARP Capital, assuming the institution has long-term viability, as discussed above.  They specifically mentioned an institution which had 600% of capital in CRE, which had reduced its CRE concentration to 400% and had plans to reduce CRE to 200% over time, and suggested that the institution would be eligible for TARP Capital.

Private Company Term Sheet

  • We have heard rumors of drafts of private company term sheets floating around, but can confirm that nothing has been finalized.  The Conference of State Bank Supervisors is meeting daily with the Treasury and told us today that they had not seen a term sheet.