FDIC proposes stricter rules for private equity investment in troubled banks

The FDIC, an independent agency set up to maintain stability in the US financial system, has put forward a Proposed Statement of Policy on Qualifications for Failed Bank Acquisitions, a set of guidelines for private equity firms that want to acquire banks.

According to the policy proposal, “One of the most important safeguard elements…is the requirement that the acquired depository institution be very well capitalised at a Tier 1 leverage ratio of 15 per cent, to be maintained for a period of at least three years, and thereafter at a "well capitalised" level.

The plans are part of a drive to help the banking system’s recovery with the aid of private equity investment, ensuring that private buyers properly and effectively support the banks once they have been acquired.   

"How investments in insured depository institutions are structured is critical for the banking system as well as the FDIC," said FDIC chairman Sheila C Bair. "We are particularly concerned with the owners' ability to support depository institutions with adequate capital and management expertise. This proposed policy statement is intended to provide those essential safeguards. We are trying to find the best way to have a balanced approach, and we look forward to comments that can help us accomplish that."

Private equity firms have expressed growing interest in scooping up troubled banks. In January, a consortium, led by Dune Capital's co-chief executive Steven Mnuchin, agreed to buy failed US mortgage lender IndyMac for $13.9bn. The purchase came from the FDIC, which ceased control of IndyMac after it failed in July last year.

In May, a consortium of private equity investors, which included Carlyle and Blackstone, acquired troubled Florida lender BankUnited for $900m. The struggling bank, which reportedly had assets of around $13bn, went into receivership after failing to meet a deadline to seek a buyer or merger partner.

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