By Theo O’Brien
Theo O'Brien is the author of Private Equity Blogger and the 20,000 member Private Equity Investment Group network. This book is a collection of over 350 free blog articles. This E-Book will be updated frequently with new articles and in a more accessible format. Private Equity Blogger will continue to expand as a resource for those interested in buyouts, venture capital and all other areas of private equity.
[pic]The Federal Deposit Insurance Corp proposed tough guidelines for private equity firms to buy failed banks. The FDIC announced Thursday a plan that calls for private equity groups to meet strong capital requirements and commit to long-term investments, in order to purchase the collapsed banks.
The proposal requires private equity groups to consistently maintain strong capital in the banks, "specifically a Tier 1 leverage ratio of 15 percent, for three years. They would also generally have to maintain the investment in a bank for three years." Additionally, private equity groups must provide a "contractual cross guarantee," in which a firm that owns two banks allows the healthier institution to provide aid for the weaker. Private equity groups would also be discouraged from lending credit to their own investment funds, affiliates or portfolio companies. Furhermore, private equity groups owning banks would need to major disclosures about their ownership structure, giving regulators greater insight as to who is running the investment.
Bank regulators on the FDIC's board argued openly over the guidelines with some officials saying that such tough measures will only scare off private equity investors, a much-needed source of capital for troubled banks. While alternative investors may be the saving grace for the banks, as traditional sources of capital have failed to rescue them. But bank regulators are nervous that allowing private equity groups to buy banks may be less secure than with... [continues]
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(2010, 08). Private Equity. StudyMode.com. Retrieved 08, 2010, from http://www.studymode.com/essays/Private-Equity-388272.html
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