The disclosure requirements for offerings of securities by state non-member banks have long been governed by the Federal Deposit Insurance Corporation's ("FDIC") 1996 Statement of Policy on the Use of Offering Circulars in Connection with Public Distribution of Bank Securities (the "1996 Statement").1 The 1996 Statement focuses on disclosure, requires that specific legends be included in offering circulars used by state non-member banks issuing securities and has no filing requirement. The 1996 Statement also refers to the disclosure requirements of the former Office of Thrift Supervision.
On January 19, 2021, the FDIC proposed, among other items, rescinding the 1996 Statement and replacing it with a new regulation to be codified in Subpart A of 12 C.F.R. Part 335, as "Securities of State Nonmember Banks and State Savings Associations" (the "Proposed Rule").2 The Proposed Rule is limited in its scope, as opposed to the 1996 Statement, which applies to all state nonmember banks. Comments on the Proposed Rule must be submitted to the FDIC by April 5, 2021.
The Proposed Rule applies to offerings of bank securities in the following circumstances:
- FDIC-supervised institutions (i.e., state nonmember banks and state savings associations) in organization;
- FDIC-supervised institutions subject to an enforcement order or capital restoration plan that intend to issue securities;
- FDIC-supervised institutions converting from a mutual to stock form of ownership; and
- Subsidiaries of state savings associations in any of the three situations above.3
Unlike under the 1996 Statement, an insured state nonmember bank issuing debt securities outside of the first three bullet points above would not be subject to the Proposed Rule. However, the Proposed Rule is instructive as to the type of disclosure to include in an offering circular for an offering of bank securities by a state nonmember bank, and the FDIC indicates that in its experience, many state nonmember banks comply with federal securities offering rules even if they are not legally required to do so.
State nonmember banks and state savings associations subject to the Proposed Rule would be required to file a registration statement, including a prospectus, with the appropriate regional FDIC office, notwithstanding the availability of the exemption from the registration requirements of Section 5 of the Securities Act of 1933 ("Securities Act") provided by Section 3(a)(2) thereunder.4 The registration statement and prospectus would need to conform to Regulation C under the Securities Act, unless provided otherwise in the Proposed Rule.5 With respect to disclosure, the documents would need to conform to the requirements of Regulations S-K and S-X under the Securities Act.6
The Proposed Rule would exempt the following types of offerings from the registration statement and prospectus requirements of Regulation C (i.e., an offering document would still need to be filed with the FDIC, but no particular form would be required):
- Regulation A under the Securities Act;
- Regulation D under the Securities Act;
- Rule 701 under the Securities Act;
- Rules 144 and 144A under the Securities Act; and
- Other reorganization and dissolution events.7
Registration statements, prospectuses and any offering circular used in connection with any of the exempt offerings listed above would need to be filed with the FDIC prior to the commencement of an offering. Once the FDIC confirms in writing that no additional changes or information to the offering circular are required, the offering could commence.8
As in the 1996 Statement, the standard legends (i.e., the securities are not deposits, not FDIC insured, no approval by the FDIC is implied and debt securities are subordinated to deposits) would need to be included in the offering circular in bold capital letters.9
Because all offerings of securities, including those by state nonmember banks, are subject to the anti-fraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, offering circulars of state nonmember banks tend to include the full scope of disclosure included in registration statements and prospectuses for offerings registered under the Securities Act. Consequently, it is unlikely that the disclosure in offering circulars for offerings of securities by state nonmember banks will change at all if the Proposed Rule is finalized.
Originally published in REVERSEinquiries: Volume 4, Issue
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1. 61 Fed. Reg. 46,807 (Sept. 5, 1996).
2. FDIC FIL-6-2021 is available at: https://bit.ly/3cwA0c0. The Proposed Rule is available at: https://bit.ly/3sz7wUt. The Proposed Rule also would rescind the rules for securities offerings by state savings associations, which the FDIC inherited from the Office of Thrift Supervision in 2011.
3. See Proposed Rule at 335.1(b). The offers and sales of the securities of state savings associations in connection with a mutual-to-stock conversion also are subject to the rules set forth by the Office of the Comptroller of the Currency at 12 C.F.R. pt. 192.
4. See Proposed Rule at 335.3(a).
5. See Proposed Rule at 335.3(b).
6. See Proposed Rule at 335.3(c), (d).
7. See Proposed Rule at 335.4(a). The Proposed Rule does not explain the meaning of the reference to Rule 144 beyond a statement that it and Rule 144A "provide guidance for persons who are not deemed to be engaged in a distribution and therefore are not underwriters, and for private resales of securities to institutions."
8. Proposed Rule at 335.7.
9. Proposed Rule at 335.6.
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