The FDIC has passed new rules governing private equity acquisitions of failed banks. The rules are a toned down version of the original proposal but still set relatively tough standards, mainly the requirement of a Tier 1 capital ration of 10% for the first three years, double that of a normal bank and 2% above new banks. Other requirements include a holding period of at least three years and a ban on lending to affiliates of the investor by the acquired bank.
81 banks have failed this year and the FDIC continues to shutter more on a weekly basis, putting a large stress on its own balance sheet. Private equity is one of the few investor classes currently capable of providing the level of capital and expertise the banking system needs. A prime example is the $182 million profit that OneWest (fka IndyMac) earned in the second quarter. In addition to OneWest, PE firms have invested in 28 banks since the beginning of 2008, according to the PitchBook Platform. Other notable recent bank investments include the W.L. Ross & Co.-led $900 million acquisition of BankUnited Financial and MatlinPatterson Global's buyout of Flagstar.