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4000 - Advisory Opinions

Capital Notes Sold As Unregistered Securities


May 9, 1989

John L. Douglas, General Counsel

We have received your letter of April 14, 1989 in which you make several comments concerning the sale of capital notes by certain regional banks to *** individual investors. In addition to providing us with your observations, you have asked for our opinion as to whether or not capital notes can be sold properly as "unregistered securities."

Capital notes generally fit the definition of "subordinated note or debenture," a permissible component of "secondary capital" under Part 325 of our regulations dealing with capital maintenance. We have no regulations requiring the filing of offering material. Our review of offering material is routinely required in the case of banks subject to an administrative order requiring an increase in capital and involving a public offering. We believe that section 3(a)(2) of the Securities Act of 1933 exempts this kind of security from the registration requirements of the Securities Act of 1933. Because they are debt securities, bank capital notes and similar securities issued by any other kind of covered issuer would not be required to be registered under the Securities Exchange Act unless the securities were listed upon a national securities exchange.

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