Private equity qualifications for acquisitions of failed banks

FS regulatory brief
Download Private equity qualifications for acquisitions of failed banks

On August 26th the FDIC issued a final policy statement regarding qualifications for purchases of failed-banks by non-bank entities. The purpose of the policy statement ("Statement") is to provide guidance to private equity ("PE") firms concerning the FDIC's standards for such purchases.

The standards generally establish higher initial capital requirements and more stringent sale restrictions than those faced by existing bank purchasers and layout potential cross-financial support requirements. PE firms can likely avoid the more stringent conditions, however, if they co-invest with bank holding companies (BHC) to recapitalize and operate banks acquired from the FDIC. In this case, the BHC must acquire a majority interest, meaning that the controlling investor will be under BHC regulation.

The Statement describes purchase conditions in the following areas:
  • Capital Requirements
  • Cross Support
  • Transactions with Affiliates
  • Identification and Transparency of Ownership
  • Duration of Ownership
  • Disclosures/Reporting