This page sets forth information from Simpson Thacher related to the global financial crisis. We have prepared a series of memoranda about the latest legal developments, which you can access below. Additional information about Simpson Thacher’s Financial Institutions practice group, made up of attorneys with considerable experience in financial institutions M & A, securities, bank regulation and general corporate matters, can be accessed by clicking on the links to the right.

U.S. Congress Nears Completion of Landmark Financial Services Reform Legislation
07.06.10 

On June 30, 2010, the U.S. House of Representatives approved the most sweeping financial reform legislation in decades, entitled the “Dodd-Frank Wall Street Reform and Consumer Protection Act.”  The U.S. Senate has yet to vote on the legislation, but it is widely anticipated that it will be approved by the Senate when it reconvenes on July 12.  Once enacted, the legislation will have far-reaching implications, affecting virtually every segment of the financial services industry and its customers.  This memorandum provides a summary of the key provisions in the legislation.  Read more. 

The Impact on Private Equity and Hedge Funds of the Financial Regulatory Reform Bills:  A Legislative Update
05.25.10

The U.S. Senate passed financial reform legislation on May 20, 2010, following the House of Representatives, which passed its own version of such legislation on December 11, 2009.  A conference committee is being formed to reconcile the two bills, each of which proposes substantial changes to the financial regulatory system.  This memorandum reviews the principal provisions of the Senate and House bills that would affect private funds and advisers to private funds.  Read more.

FDIC Issues Guidance on Policy Statement for Investments in Failed Banks
01.08.10

Yesterday the FDIC reissued a Q&A providing guidance on significant interpretation issues that have arisen with respect to the September 2009 Policy Statement on Qualifications for Failed Bank Acquisitions.  (An earlier version of the Q&A had been posted on December 11 and then withdrawn on December 14.)  The issues relate to two types of transactions that have occurred since the issuance of the Policy Statement:  an existing bank raising significant amounts of new capital in order to bid for a failed bank, and a “blind pool” investment fund raising capital in Rule 144A or similar offerings in order to bid for failed banks. Read more.

Federal Reserve Issues Proposed Incentive Compensation Guidance for All Banking Organizations
11.02.09

On October 22, 2009, the U.S. Board of Governors of the Federal Reserve System issued Proposed Guidance on Sound Incentive Compensation Policies.  This proposed guidance is intended to ensure that banking organizations’ incentive compensation arrangements do not undermine the safety and soundness of such organizations.  The guidance identifies three principles of safety and soundness of incentive compensation arrangements, and related policies and procedures, for banking organizations: (1) balanced risk-taking initiatives; (2) compatibility with effective controls and risk management; and (3) strong corporate governance.  The guidance also announced that the Federal Reserve is immediately undertaking two supervisory initiatives--a horizontal review of incentive compensation practices at 28 large complex banking organizations and a review of incentive compensation practices at all other banking organizations as part of the risk-focused examination process for these organizations.  These initiatives are intended to identify unsafe compensation practices at banking organizations and to move such organizations towards risk-management systems, controls or other practices that will assist in implementing safe and sound compensation practices. Read more.

FDIC Adopts Final Statement of Policy on Private Investor Purchases of Failed Banks
08.28.09

On August 26, the FDIC released much-awaited guidance on private investment in failed depository institutions. The FDIC’s final Statement of Policy sets forth the FDIC’s terms for evaluating proposed acquisitions of such institutions by private investors and imposes a number of significant restrictions. Read more.

FDIC Proposed Policy Statement on Private Capital Investor Purchases of Failed Banks
07.03.09

On July 2, the FDIC released a proposed policy statement that would impose a number of new requirements on private capital investors seeking to acquire a failed depository institution from the FDIC. These include, among other things, requiring covered depository institutions to maintain a 15% Tier 1 leverage ratio for at least three years, imposing minimum ownership periods on investors, and expanding the scope of cross-guarantee liability. As currently proposed, the policy statement would likely have a dampening effect on private capital investor interest in acquiring failed banks and thrifts. Read more.

Treasury Department Outlines Reforms to U.S. Financial Supervision and Regulation
06.23.09

On June 17, 2009, the U.S. Department of the Treasury released a proposed outline for comprehensive reform of the nation's financial system. The proposal focuses on three major initiatives: (1) broad supervision of systemically significant financial organizations, regardless of whether such organizations are affiliated with a bank; (2) expanded supervision of financial markets and (3) stronger consumer and investor protection measures. The attached memorandum provides an overview of Treasury's proposal.  Read more.

Treasury Issues New Employee Compensation and Corporate Governance Standards for TARP Recipients
06.23.09

On June 10, 2009, Treasury issued standards regarding the significant limitations on current and deferred compensation and severance payments that TARP recipients can provide to their senior executive officers and other highly compensated employees. These standards also require TARP recipients to satisfy certain corporate governance and disclosure requirements involving the TARP recipients' employee compensation practices. Finally, Treasury established principles by which the new Special Master of TARP Executive Compensation must review compensation previously paid by TARP recipients to determine if any such compensation should be repaid. Read more.

United States Department of the Treasury Adopts Public-Private Investment Program
04.06.09

On March 23, 2009, the United States Department of the Treasury announced the Public-Private Investment Program, to which Treasury currently intends to allocate $75 to $100 billion of TARP funding. The first component of the Program, the Legacy Loans Program, will involve purchases of pools of troubled loans from insured depository institutions by public-private investment funds that will be financed with equity from TARP and private investors and FDIC-guaranteed debt. The second component, The Legacy Securities Program will involve purchases of troubled securities from various types of financial institutions by PPIFs that will be financed with equity from TARP and private investors and debt financing from Treasury.  Read more.

American Recovery and Reinvestment Act of 2009:  Restrictions on Employee Compensation Arrangements of TARP Recipients
02.19.09

On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009. The Act contains significant limitations on the compensation and severance payments that current and future TARP recipients can provide to their senior executive officers and other highly compensated employees. The Act requires the Treasury Secretary to establish standards regarding these limitations and to review prior compensation paid by TARP recipients, and requires TARP recipients to satisfy certain other requirements involving employee compensation practices.  Read more.

U.S. Treasury Department Unveils New Financial Stability Plan
02.11.09

On February 10, 2009, the U.S. Department of the Treasury announced a new plan to overhaul federal efforts to stabilize, and lead to the ultimate recovery of, U.S. financial institutions and to address the credit crisis.  The Financial Stability Plan has several key components, including (1) the creation of a Public-Private Investment Fund to address the so-called "toxic" assets held by many financial institutions, (2) a coordinated effort with the Federal Reserve to dramatically expand the Term Asset-Backed Securities Loan Facility, and (3) the establishment of a new Financial Stability Trust to provide for and manage capital investments in financial institutions, accompanied by "stress tests" for the largest financial institutions and new requirements and conditions for the receipt and use of capital assistance.  The attached memorandum provides background on the Financial Stability Plan.  Read more.

Federal Banking Regulators Adopt Shelf Approval Process to Facilitate Bidding by Private Equity Funds on Failing and Failed Depository Institutions
12.22.2008

In order to increase the pool of bidders on failed and failing insured depository institutions that the FDIC is selling as receiver for such depository institutions, the federal banking regulators recently adopted special pre-clearance procedures to enable parties that do not already own an insured depository institution, most notably private equity funds, to qualify as bidders. The intent is to obtain sufficient information from such potential bidders in advance of any bidding process so that they can obtain, on a conditional basis, the three approvals that are needed to be qualified to bid on failing and failed insured depository institutions: obtaining a bank charter from the Comptroller of the Currency, obtaining deposit insurance from the FDIC, and obtaining approval to become a bank holding company from the Federal Reserve. If such a potential bidder is then selected by the FDIC to acquire a failed insured depository institution, it will be in a position to obtain, within a very short time period, final approvals from the OCC, the FDIC and the Federal Reserve. The attached memorandum describes these pre-clearance procedures. Read more.

Federal Deposit Insurance Corporation Adopts Temporary Liquidity Guarantee Program Final Rule
11.25.2008

On November 21, 2008, the Federal Deposit Insurance Corporation issued its Final Rule for implementing the Temporary Liquidity Guarantee Program, which is intended to restore inter-bank lending, encourage liquidity and strengthen confidence in the banking system. The attached memorandum describes the Final Rule and highlights changes that were made from the Interim Rule that was issued by the FDIC on October 23, 2008. Read more.

New IRC Section 457A Prohibits Deferral of Compensation Paid by Offshore Funds and Certain Partnerships
11.5.2008

The Emergency Economic Stabilization Act added Section 457A to the U.S. Internal Revenue Code. Section 457A (1) ends the deferral of vested compensation paid by offshore investment funds and certain other tax indifferent entities attributable to services performed for such entities after 2008 and (2) provides that vested deferred compensation payable by such funds and entities attributable to services performed before 2009 must be restructured to become taxable by no later than December 31, 2017. Although Section 457A was intended to target income deferral by managers of offshore hedge funds, nonqualified deferred compensation arrangements maintained by both foreign and domestic partnerships (including limited liability companies taxed as partnerships) are also covered unless substantially all of the partners of such entities are subject to comprehensive income taxation. Read More.

Federal Deposit Insurance Corporation Temporary Liquidity Guarantee Program
10.24.2008

On October 23, 2008, the Federal Deposit Insurance Corporation issued an Interim Rule for implementing the Temporary Liquidity Guarantee Program, which is intended to restore inter-bank lending, encourage liquidity and strengthen confidence in the banking system. The program has two components. First, the FDIC will guarantee, until the earlier of maturity or June 30, 2012, new senior unsecured debt issued on or before June 30, 2009 by eligible banks, thrifts, and their holding companies. Second, the FDIC will provide unlimited insurance coverage until December 31, 2009, for noninterest-bearing deposit accounts. The Interim Rule became effective on October 23, 2008, but the FDIC will accept comments over the next fifteen days. Read More.

Latest SEC Actions Regarding Short Selling
10.24.2008

As part of its continuing efforts to respond to recent stock market volatility, the SEC has adopted additional rules governing short selling and settlement of equity transactions. Some of the objectives of these rules are to combat abusive "naked" short selling, to ensure timely transaction settlement and to provide the SEC with information about the short selling positions and activity of certain institutional investors. Read More.

Recent Developments in Mark-to-Market Accounting
10.6.2008

Recent dislocations in the equity and credit markets have precipitated a review of the impact of mark-to-market accounting on the financial condition of U.S. financial institutions. On October 3, 2008, the Financial Accounting Standards Board issued a proposed Staff Position on FAS 157 to clarify the application of FAS 157 in the context of thin or disorderly markets and provide an illustrative example. On September 30, 2008, the Securities and Exchange Commission and the Financial Accounting Standards Board jointly issued a press release which also provided guidance on this issue. Additionally, on October 3, 2008, President George W. Bush signed into law the Emergency Economic Stabilization Act of 2008, which gives the Securities and Exchange Commission the authority to suspend mark-to-market accounting. Read More.

Emergency Economic Stabilization Act of 2008
10.3.2008

On Friday afternoon, October 3, 2008, the United States House of Representatives passed the Emergency Economic Stabilization Act of 2008, which the United States Senate had passed on October 1. The Act authorizes the Secretary of the Treasury to purchase up to $700 billion in distressed mortgage-related assets from financial institutions. The President signed the Act shortly after it was passed by the House of Representatives. Read More.

SEC Extends Short Selling Emergency Orders
10.2.2008

As described in the attached memorandum, on October 1, 2008, the Securities and Exchange Commission extended emergency short selling orders that it recently adopted. The extended orders generally terminate at 11:59 p.m. (Eastern time) on Friday, October 17, 2008, although the short selling ban for financial stocks may terminate sooner upon the passage of Congressional legislation to stabilize the financial system. Read More.

Senate Passes the Emergency Economic Stabilization Act of 2008
10.2.2008

On Wednesday evening, October 1, 2008, the United States Senate passed the Emergency Economic Stabilization Act of 2008 authorizing the Secretary of the Treasury to purchase up to $700 billion in distressed mortgage-related assets from financial institutions. The legislation is scheduled to be presented to the House of Representatives for a vote on Friday, October 3, 2008, and, if passed by the House, is expected to be signed into law shortly thereafter. Read More.

New York State to Regulate Certain Credit Default Swaps as Insurance
09.25.2008

On September 22, 2008, the New York State Insurance Department issued Circular Letter No. 19, expressing the Insurance Department’s intention to regulate "covered" credit default swaps as insurance contracts, effective January 1, 2009. As a result, after that date "covered" credit default swaps may be issued in New York only by licensed financial guaranty insurance companies. Read More.

Federal Reserve Policy Statement on Equity Investments in Banks and Bank Holding Companies
09.23.2008

On September 22, 2008, the Federal Reserve Board issued a long-awaited policy statement that addresses equity investments in banks and bank holding companies. As described in the attached memorandum, the policy statement makes three significant changes to the terms on which investors can make investments in bank holding companies without being deemed to have acquired "control" and thereby becoming bank holding companies themselves: (i) an investor that will have a seat on a bank holding company's board of directors can now own up to 24.9% of the outstanding voting shares of the bank holding company, which is an increase from the prior limit of 10%; (ii) an investor can own up to 33% of the total equity of a bank holding company, as opposed to the current limit of 24.9%, provided that the investment does not include ownership of 15% or more of any class of voting securities of the target; and (iii) an investor will be permitted to actively attempt to influence certain governance matters of the bank holding company and will no longer be required to be a completely passive investor. Read More.

Recent SEC Actions Regarding Short Sales
09.23.2008

In response to recent stock market volatility, the Securities and Exchange Commission has adopted sweeping temporary orders with respect to short sales. As described in the attached memorandum, institutional investment managers that filed a Form 13F for the quarter ended June 30, 2008 must report short sales effected on or after September 22, 2008 on a new Form SH. In addition, subject to certain exceptions, short sales in publicly traded shares of certain financial firms are prohibited. We note that the securities industry is engaged in continuing discussions with the SEC regarding the scope and implementation of these short sale regulations. Read More.

Security and Exchange Commission Amends Emergency Order Prohibiting Short Sales of Securities of Financial Institutions
09.22.2008

The Securities and Exchange Commission has adopted technical amendments to its recent order restricting short sales of securities of financial institutions. The attached memorandum describes these technical amendments. Read More.

Securities and Exchange Commission Issues Emergency Order Prohibiting Short Sales of Securities of Financial Institutions
09.19.2008

In response to the significant disruptions experienced in the public markets for securities of financial institutions, the Securities and Exchange Commission issued an emergency order temporarily prohibiting any person from effecting a short sale in the publicly traded securities of certain financial institutions. The attached memorandum describes these measures. Read More.