PE Firms Talk Bank With FDIC

More than 20 financial industry insiders debated rules put in place last year to govern private investment in failed banks at a roundtable March 22, U.S. regulators said.

The meeting, horsted by the Federal Deposit Insurance Corp., was part of a six-month review of the rules, which include requirements that private investors hold a higher capital level than bank buyers. They were criticized at the time by the industry and some investors say they have dampened private equity deals in the sector.

The “roundtable was useful to help guide the FDIC’s ongoing review of the Statement of Policy,” FDIC Chairman Sheila Bair said in a statement. The FDIC gave no indication when or if it would make further changes to its August policy statement. When the agency set the policy originally, it promised a review after six months.

Participants in the FDIC’s roundtable meeting included private equity firms Carlyle Group and Warburg Pincus and Stone Point Capital, as well as a mix of banks and law firms such as Sandler O’Neill and Davis Polk & Wardwell. Executives of the private equity firms did not respond to requests for comment by Buyouts’s deadline.

Since the rules were introduced, “qualified private investors… have successfully bid on and acquired failed institutions,” Bair said. Data provided by the Private Equity Council, which the industry body said combined data from research firm PitchBook with data from Thomson Reuters (publisher of Buyouts), showed a drop in such deals. In the 24 months between September 2007, the beginning of the bank capital-raising cycle, and Aug. 26, 2009, when the FDIC announced its final policy statement, private equity investment in insured depository institutions averaged $895 million per month, the council said. In the six months following the FDIC policy statement, investment has averaged $58 million per month, a 94 percent decline, it said.

Regulators historically have turned to other financial institutions to take on the operations of banks that failed, and the agencies have indicated some misgivings about turning to buyers outside the banking industry. In addition to concern about the commitment of non-bank buyers to the ongoing operation of the acquisitions, some observers also have suggested that a larger pool of bidders might raise the cost of deals for strategic buyers.

More than 500 financial institutions are said to be at risk of failure this year; regulators already have seized more than 35, twice the pace of 2009.

—Megan Davies and Paritosh Bansal are New York-based correspondents for Reuters.