More people probably violate the Change in Bank Control Act (CBCA) than any other banking statute, as it is complicated and easy to do. But knowing the law and helping your shareholders keep up with their ownership filings is important. The law requires regulatory approvals before a person or group of persons “acting in concert” may take actions to directly or indirectly “control” a bank or savings association. Consequently, the CBCA impacts both bank and thrift holding companies and, with minor variations, all of the federal regulators have implementing regulations for the CBCA. Although the focus of this article is the Federal Reserve Board regulations regarding changes in control of bank holding companies, it is fair to say that given the intricacy of control determinations, the CBCA is likely one of the most inadvertently violated banking statutes currently on the books. The inadvertent CBCA violations often occur because of the presumption that certain groups are “acting in concert,” and the application of the CBCA requirements to these groups.
The CBCA requires that any person or groups of persons “acting in concert” must file change in bank control notices with the applicable federal regulator if the individual or group reaches an ownership level of 25 percent or more of any class of voting securities of an institution. The definition of “person” under the CBCA is very broad and includes individuals, corporations, partnerships, trusts, associations and other forms of business entities. Acting in concert is defined as knowing participation in a joint activity or parallel action towards a common goal of acquiring control of a bank or bank holding company, whether or not pursuant to an express agreement.
There is a rebuttable presumption that an acquisition of voting securities of a bank holding company is the acquisition of control under the CBCA, requiring a notice filing, if, immediately after the transaction, the acquiring person or persons acting in concert will control 10 percent or more of any class of voting securities of the institution, and if the institution has registered securities under the Securities Exchange Act of 1934 or if no other person will own, control, or hold the power to vote a greater percentage of that class of voting securities immediately after the transaction.
In determining whether persons are engaging in concerted action, there is a rebuttable presumption that the following groups are acting in concert:
- A company and any controlling shareholder, partner, trustee, or management official of the company, if both the company and the person own voting securities of the institution;
- An individual and the individual's immediate family, which includes a person’s father, mother, stepfather, stepmother, brother, sister, stepbrother, stepsister, son, daughter, stepson, stepdaughter, grandparent, grandson, granddaughter, father-in-law, mother-in-law, brother-in-law, sister-in-law, son-in-law, daughter-in-law, the spouse of any of the foregoing, and the person’s spouse;
- Companies under common control;
- Persons that are parties to any agreement, contract, understanding, relationship, or other arrangement, whether written or otherwise, regarding the acquisition, voting, or transfer of control of voting securities of an institution, other than through certain types of a revocable proxy;
- Persons that have made, or propose to make, a joint filing under certain sections of the Securities Exchange Act of 1934; and
- A person and any trust for which the person serves as trustee.
With respect to inadvertent CBCA violations, the most likely “acting in concert” scenario is the consolidation of voting securities held by an individual and the individual’s “immediate family” members. To the extent a family group owns at least 10 percent of a bank holding company, a new notice filing may be required any time the family group or ownership mix changes. Violations of the CBCA are inadvertently committed literally all the time by family groups as ownership is realigned at death, through estate planning or gifting, as minors age into formal ownership stakes and by birth or marriage.
Although the burden of obtaining regulatory approval is on the person or group of persons acquiring control, not the institution, the issue has recently been arising with great frequency when bank holding companies seek to acquire other institutions. As part of the review process, the Federal Reserve has requested current shareholder lists to compare them to prior control determinations made by the Federal Reserve. If a review of the shareholder list indicates changes, even intra-family changes, in the control group, the Federal Reserve may require that a new notice be filed.
Although at least in the family context, CBCA issues are generally easily resolved by filing an after-the-fact corrective notice, reviewing your bank holding company shareholder lists for technical changes in family group ownership may prevent a holdup down the line as you seek approval for future expansion.