As most bank investors know, equity investment in banks is regulated on both the federal and state level. At the federal level, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) has taken pains to lay out clear and predictable rules governing equity investment in bank holding companies.[1] At the state level, well, not so much.

Any example can be found in a Maryland law captioned “Approval of Commissioner of certain stock transactions” that I will refer to as the Maryland Share Acquisition Law.[2] In a nutshell, the Maryland Share Acquisition Law requires an investor to obtain approval from Maryland’s Office of the Commissioner on Financial Regulation (the “OCFR”) prior to, among other things, making any acquisition of shares of stock of a Maryland bank or bank holding company if the “acquisition will affect the power to direct or to cause the direction of the management or policy of any banking institution or bank holding company.”

I have some good news and some bad news about the Maryland Share Acquisition Law. First the bad news:

It is a terrible law. Not only is it poorly drafted, but it contains a draconian penalty unrelated to any harm caused by a violation.

The Maryland Share Acquisition Law is woefully short on both specifics and subsequent interpretation or guidance. For instance, as written, even the acquisition of one share (representing a de minimis ownership interest) could result in a violation—there are no bright line ownership thresholds included in the statute nor has the OCFR promulgated any interpretation or guidance regarding safe harbors for inconsequential share acquisitions. In addition, there is no interpretation or guidance regarding what facts and circumstances might evidence the ability to “affect the power to direct or to cause the direction of the management or policy” of a Maryland bank.

Most importantly, while the OCFR may only deny an application made for approval under the Maryland Share Acquisition Law if the OCFR determines that such acquisition is “anticompetitive” or “threaten[s] the safety and soundness of a banking institution,” the violation for failing to seek approval under the Maryland Share Acquisition Law is that shares acquired in violation “may not be voted for 5 years” regardless of whether such acquisition is anticompetitive or a threat to a banking organization’s safety or soundness.

Essentially, the Maryland Share Acquisition Law contains two components:  first, a notice provision (i.e., acquisitions that might come within the Maryland Share Acquisition Law’s ambit must be submitted for approval from the OCFR); and second, a provision to protect public interest (i.e., acquisitions that are anticompetitive or threaten safety and soundness will not be approved). While it might make sense to have some penalty for violations of the notice provision, it is entirely unreasonable to disenfranchise a shareholder for five years if the acquisition does not in fact create any competition or safety and soundness issues.

The OCFR has indicated that “any purchases” could implicate the Maryland Share Acquisition Law and that any analogous guidance or rulemaking by the Federal Reserve is irrelevant.

The OCFR has staked itself as the “gatekeeper” for “any purchases” of shares in any Maryland bank, which, combined with the Maryland Share Acquisition Law’s poor drafting, is a recipe for arbitrary and uneven enforcement.[3] Similarly, the OCFR has privately advised that it is not bound by (nor bound to consider) any rulemaking or guidance by the Federal Reserve that might provide specific meaning or context to what might constitute the ability to “affect the power to direct or to cause the direction of the management or policy” of a Maryland bank, which further promotes the arbitrary and uneven application of the Maryland Share Acquisition Law.

Maryland banks can and will attempt to use the Maryland Share Acquisition Law to disenfranchise shareholders and prevent contested director elections.

A paradox I have often observed is that, when faced with unhappy shareholders trying to hold them accountable, the boards of underperforming banks are suddenly filled with unbounded creativity and vigor that is, unfortunately, somehow untransferable into efforts to improve financial performance.  Without going into specifics, suffice it to say that I have firsthand experience of creative and vigorous attempts by a Maryland bank to use the Maryland Share Acquisition Law (obviously without regard to the law’s stated policy purpose of ensuring competition and promoting safety and soundness) to protect a board from a contested director election.

Now, for the good news:

It is easy to file an application.

Based on my experience, applying for approval to purchase shares pursuant to the Maryland Share Acquisition Law is as simple as sending a letter with some specifics to Michelle Denoncourt (, Assistant Commissioner, Corporate Activities. Again, in my experience, the OCFR is generally quick to act on any applications and with minimum fuss.

It is a good way to send a message.

Shareholders often want to express their discontent to boards and management teams privately yet forcefully. Applying for approval to acquire a bank’s shares pursuant to the Maryland Share Acquisition Law, then sending notice of such approval to that bank or its board can be an excellent means of sending a serious (yet private) message while simultaneously removing a possible entrenchment device.

Obtaining approval for additional acquisitions should have a cleansing effect.

Should a shareholder find themselves in potential violation of the Maryland Share Acquisition Law (or, really, potentially subject to a bank’s attempts to disenfranchise that shareholder by seeking enforcement of the Maryland Share Acquisition Law) due to the failure to obtain approval from the OCFR for prior share acquisitions, that shareholder could seek approval for the acquisition of additional shares, which should have a cleansing effect on any prior purchases. In other words, if the OCFR approves the purchase of additional shares by an existing shareholder, it would likely be difficult to establish (and probably very difficult to attempt to establish without incurring the ire of some judge) that there existed any valid reason to challenge any prior purchases.

Objectively, the bad news regarding the Maryland Share Acquisition Law would seem to outweigh the good news, but it need not dissuade shareholders from seeking change at Maryland banks if an active approach toward compliance is adopted.

[1] On January 30, 2020, the Federal Reserve adopted a revised rule for determining “control” under the Bank Holding Company Act. Per Federal Reserve Chair Jerome Powell, part of the reason for the revied rule was to make it “easier for banks, particularly community banks, to raise capital to support lending and investment.”

[2] Maryland Code, Financial Institutions § 3-314.

[3] “Battle For Control Of A Rural Maryland Bank Escalates To Lawsuit, State Investigation,” Baltimore Business Journal, Holden Wilen, June 2, 2020 available at