Client Alert: Subchapter S Banks Beware

If your bank or bank holding company has made an election to be taxed as a Subchapter S corporation for federal income tax purposes, and you have a Subchapter S shareholders’ agreement in place, beware that your shareholders may be deemed to be inadvertently operating as an unauthorized bank holding company.  The Federal Reserve has recently been taking the position that the provisions of the 1972 Bank Holding Company Act will be applied to Subchapter S shareholders’ agreements that have buyback provisions and are perpetual in term.

In light of this renewed focus by the Federal Reserve, Subchapter S financial institutions may want to consider taking proactive measures to bring their agreements into compliance to avoid a regulatory violation.
Read the entire alert here