Fed eases rules governing minority equity stakes in banks

Fed eases rules governing minority equity stakes in banks
(WASHINGTON) The Federal Reserve on Monday made it easier for private equity firms and other types of investors to take minority stakes in banks, a move that could usher new capital infusions to cash-hungry banks and help them cope with credit stresses.
The Fed issued policy guidance which said that it will allow investors under certain circumstances to take up to a 33 per cent equity stake in a bank without running into regulatory hurdles. Such an investment would not constitute a ‘controlling interest’ and thus would not trigger regulatory oversight. Historically, stakes of 25 per cent or more were viewed as triggering regulatory oversight.

The Fed also is making it easier for a minority investor to have representation on a bank’s board and would allow a minority investor to more freely communicate with banking management.

A global credit crisis has made it increasingly difficult for banks and other financial institutions to line up capital. Fed chairman Ben Bernanke and Treasury Secretary Henry Paulson have been encouraging banks to raise more money to rebuild balance sheets that have been hit by billions of dollars in losses from soured investments in mortgage-backed securities.

The Fed’s guidance would apply to all types of potential investors - such as private equity firms, hedge funds, sovereign wealth funds - that might be interested in taking a minority stake in a bank. — AP

Source : Business Times  - 24 Sept 2008

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