Buyout firms balk at plan to alter bank takeover rules
FDIC wants more capital put at risk
Private-equity firms said the Federal Deposit Insurance Corp. may be diminishing the appetite for future bank takeovers by demanding that buyout groups put more capital at risk.
Under a proposal outlined by the FDIC Thursday, investor groups would act as a source of strength for “subsidiary depository institutions.’’
Buyout firms have expressed concern that expanding the so-called source of strength provision, which requires owners to support ailing banks, may impose obligations on minority investors.
“The FDIC’s proposed guidance would deter future private investments in banks that need fresh capital,’’ Douglas Lowenstein, president of Private Equity Council, an industry group, said in a statement.
The FDIC is courting private-equity companies that have about $400 billion to invest while trying to placate lawmakers who have expressed fear that buyout firms may be lax stewards of the banking industry.
The rules, subject to a 30-day public comment period, also require buyers to be well-capitalized for three years and to maintain a Tier 1 capital ratio of at least 15 percent.
There is also a provision requiring investors to own the bank for a minimum of three years.
“The dialogue has begun with respect to the rules and that’s a process that I think both sides would welcome,’’ said Thomas Vartanian, a partner at the law firm Fried Frank Harris Shriver and Jacobsen LLP in Washington. “The bad news is that the discussion has started in a way that suggests private equity investors should be treated differently.’’
The plans would bar investment by “silo structures,’’ in which a controlling investment would be isolated from a private-equity firm’s other holdings.
John Dugan, the US comptroller of the currency, and John Bowman, acting director of the Office of Thrift Supervision, both members of the FDIC’s board, said the proposals may go too far.
The rule changes could “choke off capital,’’ Bowman said during the board meeting.
“We hope that the comment period yields changes that facilitate the flow of private capital into the banking system, consistent with the administration’s other efforts to address the financial crisis,’’ Lowenstein said in the statement.
