Federal Reserve Goes After Anti-Takeover and Shareholder Protection Tools

April 11, 2016

The U.S. Federal Reserve Board (FRB) has become sensitized to safety and soundness concerns relating to shareholder protection arrangements. These arrangements are generally designed to protect existing shareholders of bank and savings and loan holding companies in the event of future capital raises by the holding company.

In a recent supervisory release (SR 15-15), the FRB noted that such arrangements may: negatively impact a holding company’s capital or financial position; limit its financial flexibility and capital raising capacity; or otherwise impair its ability to raise additional capital. In short, if these arrangements impede the ability of a holding company to serve as a source of strength to its insured depository subsidiaries as now required by Dodd-Frank, the FRB would view the arrangements as unsafe and unsound.

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