Prompted by a stream of multibillion dollar losses by banks, the Federal Reserve is busy considering relaxing the rules surrounding ownership of banks in order to make it easier for private equity firms to invest in the sector.
Bloomberg is reporting that the Fed has purportedly narrowed things down to the consideration of three different measures, according to people with knowledge of the deliberations.
The various proposals include:
- the use of silo funds that are walled off from the PE firm's other investments, allowing other portfolio companies to avoid more federal oversight.
- allowing buyout shops to exercise more control over the banks they invest in
- encouraging club deals by the LBO shops, where multiple buyout firms invest together in a bank, reducing the size of any one firm's stake.
Suffering from massive write-downs, banks have been tapping various sources for capital in order to shore up their reserves. Although they are sitting on billions in capital, private equity firms haven't exactly rushed into the sector hunting for bargains because of onerous rules surrounding majority ownership of a bank.
The few buyout shops that have done so -- TPG Capital investing in Washington Mutual Inc. and Corsair Capital LLC shoring up National City Corp. -- have seen the value off their stakes plummet in the weeks since the deals were made. Nevertheless, many firms are likely to see the opportunities as too good to pass up. Earlier this week, Bloomberg reported that hedge fund manager John Paulson was raising a new fund specifically to invest in banks and brokerages. - George White
