In all the commotion and hullabaloo surrounding the events effecting the financial world these past few weeks, little attention has been paid to the Federal Reserve relaxing rules concerning minority ownership of banks by Private Equity investors and other investment groups, allowing them to own up to 33% of a bank’s equity, including 15% of the voting shares.
Thus far banks have had to raise more than $350B thanks to write-downs in excess of half a trillion dollars, and the need for further infusions of capital is certain. With these lowered restrictions Private Equity firms could provide much needed additional funding. Look for Private Equity firms to invest in small and medium sized banks as funds won’t wish to put all their eggs in one large bank basket, especially after witnessing the difficulties that TPG has experienced with WaMu.
Moving the ceiling up to 33% is a step in the right direction, but it’s not enough to make PE a viable source of rescue.