Zen and the Art of Shareholder Succession Planning: Part Four

Like everything else in banking, shareholder succession planning comes with a regulatory asterisk. Unlike most other businesses, bank and bank holding company (BHC) shareholders cannot seamlessly or nimbly pass their ownership to successor shareholders, nor can banks and BHCs so easily issue and redeem equity. Obviously, this encompasses a vast web of federal and state requirements and regulators that we cannot possibly cover here, so this article will focus on a short summary of key Federal Reserve (FRB) requirements that impact shareholder succession planning.

Changes in Control

Federal and state law tightly regulate who can control bank stock. This is a dense and nuanced topic that has filled decades of regulations, guidance, and commentary; however, three basic control thresholds trigger the filing of a notice of change in control (CIC): (1) 25 percent, (2) 10 percent if no other person controls more, and (3) becoming the largest shareholder.

Generally, a person and/or control group (discussed more below) triggering any of the above will need to file a CIC notice with the FRB at least 60 days prior to the proposed acquisition, though certain circumstances (such as inheritances, gifts, and redemptions) qualify for after-the-fact notices. Further, if a person previously approved for control over a particular threshold subsequently drops below that threshold, such person will need to file a new CIC notice to again exceed the higher threshold.

Control Groups

As mentioned above, all members of a “group acting in concert” also must file CIC notices if, when their shares are aggregated, they control a triggering amount of BHC stock. Regulation Y presumes that certain affiliated shareholders are acting in concert, such as immediate family members, companies under common control, parties to a voting agreement or similar arrangement, and a trust and its trustee(s) (among others). Any new shareholders who will fall into an established control group will need to file a CIC notice to join that control group.

Anecdotally, control group filings are among the most commonly overlooked, particularly among immediate family. Family control groups evolve over the years, with the result that new shareholders sometimes fail to file to join the control group.

Some bankers assume that reporting their control groups in the annual FR Y-6 is sufficient, but that is not the case. FR Y-6s are not generally reviewed for this purpose, and this report is no substitute for the required CIC notice.

Shareholder Agreements

Under Regulation Y, shareholders who are party to certain types of agreements can each be deemed to control the organization regardless of their individual ownership unless the agreement is structured in a particular way. For example, agreements that include excessive rights of first refusal, require redemptions upon certain triggering events, or do not terminate within 25 years will garner regulatory criticism. Further, if a shareholder agreement does not meet certain requirements, it can be deemed a BHC in its own right. Helpfully, Regulation Y and the guidance in SR 15-15 provide information regarding the types of provisions that do and do not raise supervisory concerns.

The FRB now reviews shareholder agreements in connection with many other routine filings, and they do not hesitate to flag issues or concerns. If there is a meaningful filing in your organization’s future, consider reviewing and updating your shareholder agreement in advance to avoid delays and frustration. For a more complete discussion of shareholder agreements, see our article on Buy-Sell Agreements in the December 2025 newsletter.

Trusts

For the FRB’s purposes, trusts are considered legally distinct from their grantors, so the transfer of BHC stock into a trust can trigger the need to file a CIC notice even if the trustee is the transferring shareholder. The FRB will require filings from the trust and the trustee(s), as well as others who may exercise control over the trust and therefore the shares (such as trust protectors). Further, a change in trustees will also trigger a CIC notice by the incoming trustee.

Trust transfers often go unreported to the FRB, and sometimes even the BHCs themselves are not aware when a shareholder has moved their shares into a trust. But since trust agreements must generally comply with certain regulatory requirements to hold BHC shares, shareholders should consult with the BHC before making trust transfers.

Redemptions

Redemptions of BHC stock, including those done in connection with an option under a shareholder agreement, can also trigger filing requirements. The FRB has detailed (and sometimes nuanced) requirements regarding redemptions, and they often require advance notice to — or at least consultation with — the FRB. SR 15-15 and the Small Bank Holding Company Policy Statement are critically important here, and BHCs that complete redemptions without analyzing regulatory requirements can find themselves in trouble.

Conclusion

Undoubtedly, banking can be an overwhelming business. Some of these requirements have hovered off of bankers’ radars, leading to unwelcome surprises and a difficult game of catch-up. Certain issues have ticked up in priority for the FRB, which is leading to many “mea culpa” filings. Filing requirements can be surprising and cumbersome for bankers and shareholders alike, and delays associated with unexpected filings or issues raised during such filings can wreak havoc. Adding these issues to your shareholder succession planning radar now can save time and headaches (and legal fees!) later.