The FDIC Compromises On Private Equity Bank Ownership

Faced with a dwindling universe of buyers for the banks it takes over, the FDIC today agreed to significant revisions in previously announced restrictions on the acquisition of banks by private equity firms.

The agency had indicated it would require the acquiring PE firms to maintain a Tier 1 capital ratio of 15% but reduced it to 10%. They stuck with their requirement of a 3 year holding period but backed on a “source of strength” provision that would have put an acquiring firms’ other assets at risk in the event of a subsequent failure.

The FDIC has a lot of cleanup ahead of itself and few buyers within the banking sphere who have either the desire or means to pick up meaningful pieces of what’s left. They probably had no choice but to hold their nose and compromise on the tough standards they originally proposed. Still, mixing commercial and industrial ownership of banks has a long and very decidedly bad history in this country and others. It shouldn’t come as a surprise if this turns out badly.

more: here

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