FDIC Approves Revised Rules for PE Investments in Banks

WASHINGTON (Reuters) – U.S. banking regulators voted on Wednesday to ease rules applying to private investment in troubled banks.
Before the 4-1 vote of the Federal Deposit Insurance Corp board, chairman Sheila Bair said the agency’s staff have made “significant” changes to previously proposed guidelines and had dropped one of the requirements.

Dropped from the latest proposal, Bair said, was a proposal that investors would serve as a “source of strength” for the bank they buy, which critics said could have put them on the hook for more capital if the institution struggled.

“The FDIC recognizes the need for additional capital in the banking system,” Bair told the meeting of the FDIC board.

Potential investors and some regulators had warned that a version of the proposed rules initially unveiled in July could scare away much-needed capital from the banking industry.

U.S. bank regulators are increasingly looking to nontraditional investors — such as private equity groups and international banks — to nurse failed banks back to health as the number of insolvent institutions continues to rise, draining the FDIC’s deposit insurance fund.

Regulators have shuttered 81 banks so far this year, compared with 25 last year, and three in 2007.

Sitting on the board are Bair, FDIC Vice Chairman Martin Gruenberg, FDIC Director Thomas Curry, Comptroller of the Currency John Dugan and the acting director of the Office of Thrift Supervision, John Bowman.

Bowman and Dugan had raised concerns about the initial version of the rules.

Bair had defended the proposals in July, saying strong capital requirements and other provisions were needed to ensure the safety and soundness of banks but said she was open to industry input.

Following are highlights of the FDIC board meeting at which the proposal was approved:
* OCC head Dugan says revised private equity guideline proposals are “significantly improved”

* OCC’s Dugan says supports revised private equity guideline proposals * Dugan says strongly supports provision that would have bank regulators review the guidelines, if they are approved, in 6 months

* OTS head Bowman says not prepared to vote in favor of revised private equity rule proposal * Bowman said proposals not sufficiently backed by solid evidence of impact of private equity investments in failed banks

* Bowman says not sure private equity investors should be singled out as a separate group of investors * Bowman says revised policy proposal for private equity is overly broad, imprecise

* FDIC Chairman Bair says revised private equity proposal is a good and balanced compromise

* FDIC chairman Bair: “We do want people very serious about running banks”

* OTS head Bowman was dissenting vote.