Can guaranteed debt issued by the parent company be put in a subsidiary bank as capital?
The proceeds of guaranteed debt issued by the holding company and sold to a third party could be injected into the subsidiary bank as capital. However, given the relatively short duration of the debt guarantee program, the holding companys ability to retire the debt at maturity should be carefully considered. The FDICs Risk Management Manual of Examination Policies provides the following guidance to examiners in evaluating the quality of new capital injections from a parent holding company: Management’s access to capital sources, including holding company support is a vital factor in analyzing capital. Also, the strength of a holding company will factor into capital requirements. If a holding company previously borrowed funds to purchase newly issued stock of a subsidiary bank (a process referred to as double leverage), the holding company may be less able to provide additional capital. The examiner would need to extend beyond ratio analysis of the bank to assess management’s access to
Related Questions
- If a bank or holding company wishes to apply for a higher guaranteed debt limit under the debt guarantee component of the Temporary Liquidity Guarantee Program, must it do so by December 5, 2008?
- What is the risk weight for risk-based capital purposes for a banks holding of bank or bank holding company debt guaranteed by the FDIC under the Temporary Liquidity Guarantee Program (TLGP)?
- Can guaranteed debt issued by the parent company be put in a subsidiary bank as capital?
