At 3:30 p.m. today (EDT), the FDIC will meet to vote on a proposed policy governing restriction to private equity firms investing in failed banks.
For you policy wonks who can’t get enough CSPAN-like viewing, you can check out the video online by going to this link. Also, Dan says he plans to cover the meeting live, so stay tuned to peHUB for your up-to-date FDIC coverage.
There’s actually not much drama expected at the meeting. The FDIC provoked a backlash when it proposed strict guidelines in July outlining regulations related to PE firms investing in banks. However, the FDIC is expected to agree to a softer policy when it meets today.
Basically, the proposed policy would force private equity firms to maintain high capital levels and put a large amount of their own money at stake when investing in failed banks. The strongest complaint from PE pros has been that the proposed rules called for a Tier 1 leverage ratio–the ratio of a bank’s capital to its assets–of 15% for three years, well above the 5% required of well-capitalized banks. Today, the FDIC may agree to roll that back to 10 percent.
I spent part of Wednesday emailing and talking to people familiar with the matter. The key person to watch on the five-member FDIC board is Chairman Sheila Bair. Her fellow board members, Vice Chairman Martin Gruenberg and Thomas Curry, are likely in favor of any proposal. On other side of the political spectrum, Comptroller John Dugan and John Bowman (who is acting director of the Office of Thrift Supervision) likely will raise objections.
The FDIC knows more about the issues than me. However, I can’t believe that the vote today will settle matters and I doubt that this will be the last we hear of the issue. My colleagues at Reuters have reported that 150 to 200 more U.S. banks will fail in the current banking crisis, on top of 81 so far in 2009, adding stress to the FDIC’s deposit insurance fund. NOt sure how many of these banks are viable acquisition targets for PE firms.
I spoke with David Panton, partner and co-founder of Atlanta-based Navigation Capital Partners (a mid-market firm that has been considering bank investment opportunities) who says:
“We are pleased that the FDIC will soon provide greater clarity on its approach to private equity investments in banks. We are eager to see if the proposed source of strength requirements are relaxed for genuine, passive minority private equity investors.”
Stay tuned for Dan’s coverage and perhaps some more reaction to the FDIC vote.