Be Mindful Of The Change In Bank Control Act

An issue that often gets overlooked when a person is acquiring significant shares of a bank holding company’s stock is compliance with the Change in Bank Control Act (CIBC). This article focuses on bank holding company stock and the Federal Reserve regulations, since most banks are owned by a bank holding company. However, similar rules apply to stand-alone banks.

Essentially, if a person or group “acting in concert” acquires 10% or more of the outstanding shares of a bank holding company and they are the largest shareholder, the person or group must file a CIBC notice with the Federal Reserve and receive prior approval before effecting the acquisition. A person is deemed to “act in concert” with, for example, family members (which is defined broadly to include, among others, a spouse, parents, children, siblings, and in-laws), entities in which the person is a controlling shareholder or management official, and trusts for which the person serves as trustee.

One situation in which CIBC requirements frequently get overlooked is when family members pass down shares from one generation to the next. It is not uncommon for a family that has controlled a bank holding company for generations to assume that transferring shares to a family member via a gift or an inheritance is a nonissue from a regulatory point of view. However, it is important to note that adding a new family member to the group in this way typically requires an after-the-fact CIBC notice to be filed with the Federal Reserve within 90 days of the date the gift or inheritance is made.

Also, it is important to be mindful that once a family group is approved to control a bank holding company, if the stock acquisition would result in an individual member going above 10% or 25% ownership, an additional CIBC notice may be required.

While our experience is that the Federal Reserve is typically lenient with respect to inadvertent violations, you never want to assume this! Further, CIBC violations can slow down a merger application. For example, the Federal Reserve will typically ask an acquiring bank holding company for a copy of its shareholder list. If a shareholder has not filed a required CIBC notice, the Federal Reserve will likely move the application to non-expedited processing and require the CIBC notice to be filed and processed before acting on the merger application.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.