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A Guide On How To Buy Your Very Own American Bank
While it is true that buying a bank can be a tedious journey for anyone or institution, it doesn't mean that it is a preserve of the Gordon Gekkos of this world, especially in case of community banks or if you want to buy a failed bank. Today, the FDIC is on a mission to encourage even small and not-thought-about investors to buy banks as well as banking assets in order to inject new capital into the banking sector.
How to Buy Your Very Own American Bank
However, investors must abide by all the policy and regulatory requirements before they are allowed to operate a bank in the US. You can own a bank by either buying stocks to be a shareholder or through buying its assets. Whichever the route you wish to take, buying a bank requires that you perform due diligence and get the help of experts in the industry to avoid losing your hard-earned savings. Are you looking to buy a "failed bank"? remember that banks do not literally go bankrupt, as this is not a provision under the Bankruptcy Code. Usually, a troubled bank is driven into receivership in which case the FDIC moves in as the receiver to take control of all the assets, including all the liabilities such as leases, deposits, and yet-to-be disbursed loans.
What to Know Before You a Bank's Assets
When a bank is declared insolvent, the FDIC will assess its case and try to sell its assets at the most reasonable prices so as to settle the liabilities covered under the FDIC insurance. The FDIC is carefully considering getting the highest bids for tough-to-sell loans through online auctions that have attracted average investors that have come on board to play a crucial role in reviving would-be collapsed banks.
If you're looking to invest in some complex yet profitable sectors, the FDIC has established policies that make it possible for smaller private investors to buy struggling financial institutions. So if you or your financial analyst strongly believe that a given bank's troubles have been over-rated, or its assets undervalued you can inject equity into it and enjoy eventual profits thereafter.
Requirements for Investing in Banks
The FDIC has developed certain requirements and conditions which private investors (or covered investors) must fulfill if they have an interest in placing a bid for a troubled bank.
First, an investor is expected to maintain at least 10 percent of the bank's assets in capital reserves, unlike acquirer banks that are required to maintain at least 5% of the capital in reserves. Additionally, you must be willing to ensure you are well-capitalized for the period you will be owning the bank.
You must be ready to adhere to a three-year minimum holding period, avoid insider trading/lending, and abide by the restrictions on the restructuring processes. These rules are set to ensure all the owners of the bank are known. Today, private equity firms, as well as hedge funds are organizations known for their notoriety when it comes to complex and often unclear legal and ownership structures.
It is advisable to limit your investment in a troubled bank to what experts call "passive" investment. this is so that you avoid becoming a bank holding bank, which is often subjected to strict supervision by the FDIC, capital, reporting, and regulatory requirements. For this reason, the FDIC advises owners of failed banks to maintain their equity below 25 percent of ordinary shares or at most 33 percent of total equity.
Final Thought Before You Buy a Bank
When looking for a potential bank to buy or invest in, remember to check the requirements and advice of the FDIC on troubled banks. But you have the liberty to do your own research to find a troubled bank for sale that are worth your investment and which stand a better chance of bouncing back. This guide on how to buy a bank will go a long way in helping you invest your money wisely into one of the most profitable organizations in the country.
If you have decided to invest to buy a bank and do not know how to go about it,visit mergerscorp.com. At MergersCorp M&A International, our experienced professionals are here to help our clients venture into a lucrative banking industry.
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