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Wednesday, September 17, 2014

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SRC Insights: First Quarter 2008

For Your Information: Trust Preferred Securities Review Process

Recently, many banking organizations have contacted this Reserve Bank to obtain an understanding of the review process for issuing and redeeming trust preferred securities (TPS). The following is an outline of the current process.

Banking organizations are required to consult with the Federal Reserve on capital implications before issuing or redeeming TPS.1 Requests in the Third District should be submitted at least 10 business days before the issuance or redemption to the following:

William L. Gaunt
Assistant Vice President
Federal Reserve Bank of Philadelphia
10 Independence Mall
Philadelphia, PA 19106

TPS Issuances
To provide for timely reviews, request letters should include specific information. This includes the purpose of the issuance, source of cash to service the subordinated debt, and pro forma financial statements, including capital projections and regulatory capital ratios.

In addition, in order to qualify for tier 1 capital, TPS must allow a minimum deferral period of 20 consecutive quarters for the payment of dividends, and the subordinated debt must have a minimum maturity of 30 years. The inclusion of these two qualifying criteria in the TPS issuance should also be noted in the request letter.

TPS Redemptions
Redemption requests need to include the purpose for redemption and the source of cash. The TPS should have been outstanding for a minimum of five years, and the banking organization should provide pro forma financial statements, including capital projections and regulatory capital ratios, for the proposed redemption.

When the review is complete, an acknowledgment letter is issued. It should be noted that the Reserve Bank's review is not meant to replace the banking organization's consultation with legal counsel.

For questions regarding TPS, please contact Applications Analyst Bill Lenney at (215) 574-6074, Supervising Examiner Eddy Hsiao at (215) 574-3772, or Supervising Examiner Vince Poppa at (215) 574-6492.

The views expressed in this article are those of the author and are not necessarily those of this Reserve Bank or the Federal Reserve System.