Clock is Ticking to Finish FDIC PE Policy

By Joe Adler



Pressure is growing on the Federal Deposit Insurance Corp. to finalize rules governing private-equity ownership of banks as it stares down three likely failures. The agency is rushing to finish the rules while juggling the expected closures of $25 billion-asset Colonial Bank, $14 billion-asset Guaranty Bank and $7 billion-asset Corus Bank. But some question whether the FDIC’s proposal, which private-equity investors call too restrictive, is limiting the pool of potential investors and driving up the agency’s resolution costs.If the FDIC does not act quickly, there “will be ongoing uncertainty about acquisitions of any institution that the private-equity world believes requires federal support, and ultimately a deeper hole to fill in each one of those cases,” said Karen Shaw Petrou, a managing partner at Federal Financial Analytics Inc. At issue is a July 2 proposal that would place tough restrictions on private-equity firms that buy failing banks, including higher minimum capital requirements, cross-investment guarantees and a mandatory hold time that bars private-equity firms from selling a bank for three years. The plan spooked private-equity investors, many of whom said they would not consider doing another deal with the FDIC until the proposal was reworked.