from the St Louis Fed
— this post authored by Julie Stackhouse, Executive Vice President
By virtue of a very active and deep stock market in the U.S., many people own shares of bank stock. In most cases, these shares are held in publicly traded banks – many of which are large in size. Because smaller banks are often not publicly traded, stock in those institutions is typically purchased directly from the seller. Buyers of the stock of smaller banks are often the banks’ directors, officers and community members.
Ownership of significant holdings of bank stock requires approval of federal (and sometimes state) regulators. The regulatory approval requirements differ, depending on whether the stock is owned by an individual or a corporation.
Individual Ownership
Individuals commonly buy shares of bank stock either directly or through fund managers. Regulations permit such purchases until the ownership level of an individual reaches 10 percent of the outstanding shares of any class of securities.
To go beyond 10 percent, the purchaser must complete certain regulatory requirements, including the provision of biographical information and a demonstration of financial capacity. Regulators then run a background check to assess that person’s character. A felony conviction, for example, would disqualify an individual from moving over the 10 percent ownership threshold.
Other factors that would raise issues include a less-than-honorable discharge from the military, adverse comments made by bank regulatory agencies or other factors that raise concerns with respect to the purchaser’s competence or integrity. Moreover, the individual must prove the financial capacity to fund the stock purchase without excessive reliance on dividends from the bank itself.
Corporate Ownership
Sometimes, individuals wish to use funds residing in other companies they own to purchase bank stock. These companies include traditional corporations, business trusts and certain partnerships.
