Chillin' out till it needs to be funded
U.S. regulators are drawing up rules that would make it easier for private equity firms to acquire troubled banks, aiming to free up more funds to recapitalize lenders, the Financial Times reported, citing people close to the situation.
The plan, which has yet to be finalized, may require private equity companies to inject substantial capital into lenders and to agree not to sell them for at least two years, the newspaper reported.
Obama administration officials continue to stress concerns about ensuring sufficient capital in the financial system, even as several financial institutions have begun lining up to return funds borrowed under the governments $700 billion troubled asset relief program to cope with the financial crisis.
The paper cited analyst estimates that private equity firms could provide up to $50 billion to recapitalize banks.
The Federal Deposit Insurance Corporation, which is charged with taking over failed lenders, is leading the drafting of the new rules, the paper quoted people familiar with the situation as saying.
The FDIC board, which also includes representatives from other banking regulators, is expected to discuss the matter in the next few weeks, it said.
Buy-out funds wanting to buy a troubled bank would have to disclose performance measures and marketing materials to allay fears that they might use the banks to subsidize other companies in their portfolio, it added.
The Federal Reserve has limited private equity groups to bank stakes of less than 25 per cent, reflecting concerns over conflicts of interests, but the latest crisis has prompted regulators to take a softer stance, the paper said.