Naturally the private equity council watched today’s FDIC board meeting (see earlier) with great interest–many of its members have already made bank investments, which may not necessarily be exempt from the new investing rules.
The PEC, which represents the 11 largest buyout firms in the US, issued a statement today which expresses continued criticism of the 10% capital requirements for banks under the ownership of private equity firms. The FDIC lowered this requirement from its initial proposal of 15%.
The PEC was so critical, in fact, that it pulled out private equity’s secret pity weapon, reserved only for the direst of situations–the old “We are do-gooders, we invest public pension money” trick. The FDIC wouldn’t really want to impose such harsh requirements on the money managers of retired firefighters and teachers, would it?
Well, maybe that wasn’t the exact wording. The PEC did express appreciation of the FDIC’s six-month review period for the rules. A lot can happen in six months, and perhaps the FDIC will loosen its requirements even more at that time. You can read the PEC’s official statement below.
Doug Lowenstein, President, said the following:
The revised FDIC guidelines represent an improvement over those originally proposed in July. But we continue to question the need to impose more onerous capital requirements on private equity firms that invest on behalf of retired police officers, firefighters, teachers, and other public employees.
At a time when the nation’s banks are struggling to raise capital, it is counterproductive to impose measures that could deter investors who are ready, willing and able to provide that capital. Higher capital thresholds could make it less likely that private equity investors will bid on failed banks. At a minimum, it will reduce the value of any bids, increasing the resolution costs for the FDIC and creating greater likelihood that the agency will be forced to tap the $500 billion line of credit put up by American taxpayers. Given the well-documented track record of private equity firms in turning around troubled companies, it also makes little sense to deprive the banking system of needed expertise.
That said, we appreciate the fact that the FDIC will review this guidance in six months. We hope that this review will yield a long-term policy that will equally benefit the customers and communities of failed banks, the FDIC, private investors, and the United States’ taxpayers.