Investor Guidelines Eased by FDIC
The FDIC board passed new guidelines in a vote of 4 to 1. FDIC softens investor guidelines to bring in private equity investors.
The new guidelines approved by Federal Deposit Insurance Corporation (FDIC) were aimed to lure investors previously uninterested to purchase failed banks because of required capital levels.
Under FDIC’s new guidelines, the private equity investors will only meet a 10% Tier 1 of capital ratio requirement which is down compared to the 15% proposed earlier. The banks bought by these private equity groups would also need to maintain this capital ratio for three years at least. Capital ratio requirements like these are meant to ensure that the bank will not jeopardize its solvency while sustaining reasonable losses.
In a statement released by FDIC Chairman Sheila Blair, “This policy statement strikes a balance to ensure that investors will approach banking in a prudent, long-term, and transparent way while attracting non-traditional investors in various insured depository institutions. From these comments, it seems like FDIC found the most appropriate policy. “It protects both a sound and safe banking system while protecting the taxpayer’s interests. At the same time, it provides guidance needed by investors to evaluate investments in failed institutions’ deposit operations,” added Blair.
The FDIC had only two deals done with private equity groups. Since bank failures have hit very high into the year, they have been seeking for a method that will raise some interest from private funds yet does not sacrifice integrity of banking requirements. The policy came one day before the quarterly briefing of FDIC. This will be announced during the briefing along with updates to the troubled banking institutions list.
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