Federal Preemption And Bank Securities: Was The Commissioner’s Order Really Necessary?


The August 2011 Monthly Bulletin published by the Department of Financial Institutions recently arrived in my inbox. One article caught my eye and caused me to revisit the status of state regulation of the offer and sale of bank securities in light of the National Securities Markets Improvement Act of 1996.

The Small Business Lending Fund

First, I want to give a little background on the DFI’s article. It discusses the Small Business Lending Fund, or SBLF. Congress created the SBLF as part of the Small Business Jobs Act of 2010. It is a $30 billion fund that encourages lending to small businesses by providing capital to qualified community banks with assets of less than $10 billion. The U.S. Treasury provides capital by by purchasing Tier 1-qualifying preferred stock or equivalents. In May of this year, the Commissioner of Financial Institutions issued this order exempting the offer and sale of securities to the SBLF by California state chartered banks from the application and permit process normally associated with those sales. For those banks that had previously issued preferred stock under the Troubled Asset Relief Program (TARP), the Treasury is now proposing to accept new SBLF preferred shares in exchange for the TARP shares. The DFI article explains that consistent with the Commissioner’s May 31 order, no additional approvals from the DFI is required.

Please see full article below for more information.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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