Reply #39: (7 more banks fail as) FDIC mulls rules for sales

[Demeter]

http://www.google.com/hostednews/ap/article/ALeqM5irvO5...

...government regulators proposed new rules for private equity firms seeking to take over failed banks.

Under new rules proposed Thursday by the FDIC, private equity firms seeking to buy failed banks would face strict capitalization and disclosure requirements, but some regulators already warn the proposal may go too far.

The FDIC is seeking to expand the number of potential buyers for the growing number of banks it has closed during the financial crisis. With mounting interest from private equity firms, whose methods and motives aren't always clear, the FDIC is trying to set requirements to ensure the banks won't fail again.

One of the new proposals under discussion would require investors to maintain a healthy amount of cash in the banks they acquire, keeping them at about a 15-percent leverage ratio for three years. Most banks have lower leverage ratios, which measure capital divided by assets.

Investors also would have to own the banks for at least three years and face limits on their ability to lend to any of the owners' affiliates.

Regulators said their intent was to tap into the potentially deep source of private equity, while ensuring that banks remain well capitalized once they are sold.

"We want nontraditional investors," FDIC Chairman Sheila Bair said at the board meeting. "There is a significant need for capital and there is capital out there."

Still, some regulators worried that the rules could stifle a potentially valuable new source of investment. Bair said the proposal was "solid," but acknowledged that some details, including the high capital requirements, could be controversial.

Comptroller of the Currency John Dugan said that the rules, which will now be subject to public comment, may be too restrictive.

The Private Equity Council, a Washington-based advocacy group for firms, criticized the proposed FDIC guidelines. In a statement, the group's president, Douglas Lowenstein, said the proposals would "deter future private investments in banks that need fresh capital."

The proposals will be subject to a 30-day public comment period, after which the bank regulators likely will meet again to finalize the rules, said FDIC spokesman David Barr.

....The FDIC already has brokered two sales this year to entities controlled by private equity firms. In March, the government sold IndyMac Federal Bank for $13.9 billion to a bank formed by investors that included billionaire George Soros and Dell Inc. founder Michael Dell.

But the business practices and ownership of the lightly regulated pools of investor funds often can be difficult to penetrate. The FDIC proposals include requirements meant to pry some information out of the investors, including disclosing the owners of private equity groups. The FDIC rules also would prevent the groups from using overseas secrecy laws to shield details of their operations.

Under the regulations, banks also would not be sold to investors with so-called "silo" structures that make it hard to determine who is behind a private equity group...