FDIC sets purchase rules for equity firms

WASHINGTON, Aug. 26 (UPI) -- Private equity firms seeking to buy failed banks will need to partner with existing banks to avoid tough requirements, U.S. regulators decided Wednesday.

The Federal Deposit Insurance Corp. board voted 4-1 to establish stringent ground rules by which board members hope to attract more private capital to the struggling institutions while at the same time protecting taxpayers, the business news Web site Marketwatch reported.

Under the new guidelines, private equity firms with no experience in banking will reportedly need to maintain a 10 percent capital-asset ratio and to agree to significant restrictions on lending to their affiliates. The tough rules are designed to encourage private equity firms to partner up with existing bank holding companies in order to avoid the requirements.

Marketwatch quoted FDIC Chairman Sheila Bair as saying her goal is to prevent equity firms from "flipping" failed banks.

"We do want people who are interested in running banks," Bair said.