FDIC Will Need A Lighter Touch To Attract Private Equity

Hopes that the Federal Deposit Insurance Corporation (FDIC) would facilitate a much-needed increase of private equity (PE) investment in the US banking sector were dashed on July 2, with buyout groups claiming that proposed new guidelines would stymie investment even as regional banks continue to fail. At the July 2 board meeting, the FDIC proposed that a private equity acquirer would need to recapitalize an acquired bank to a much higher level than traditional banks (specifically, a Tier one ratio of 15%), while agreeing to hold on to the bank for a minimum of three years. Other rules would prevent a PE firm from isolating a controlling investment in a bank from its other holdings in a 'silo structure', while under a cross-holding arrangement investors that own more than one bank would have to agree to use one as a potential source of capital for another.

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