FDIC Issues Proposed Guidelines Restricting Private Equity Investments In Failed Banks

On July 2, the FDIC issued proposed guidelines that would significantly impact private equity investments in failed insured depository institutions. The Proposed Statement of Policy on Qualifications for Failed Bank Acquisitions applies directly only to acquisitions of failed banks, but observers are concerned the FDIC may apply the same or similar guidelines in reviewing applications for approval of investments in operating institutions.

The Policy Statement reflects a certain unease on the part of banking regulators and Congress with the undeniable appeal of private equity as a deep capital source for the embattled financial services sector. The FDIC has already approved private equity bids to acquire IndyMac and BankUnited. However, some within various bank regulatory agencies and in Congress have expressed wariness. This was reflected in recent correspondence between FDIC Chair Sheila Bair and Senator Jack Reed (D RI), chair of a subcommittee that oversees the