The Federal Deposit Insurance Corp. on Friday clarified the authority of state banks to invest in trust-preferred securities.
In a letter to bank chief executive officers, FDIC Director of Supervision James L. Sexton said that, as long as state law permits it, state banks regulated by the FDIC may buy trust-preferred stock in unlimited quantities.
Bankers requested the clarification after a Jan. 1 regulatory change raised questions about banks' authority, an FDIC official explained.
Trust-preferred stock is issued by a trust, or tax-free subsidiary, of a bank holding company. The trust issues common and preferred shares, keeping the former and selling the preferred stock to investors.