"No one wants to be hauled before a congressional committee and say, 'How did you not know about this?'" says Kaplan. "If you have Osama bin Laden as your investor, I don't want to be the regulator who has to answer to that."
As a result, the approval process can be long and arduous. Complex rules and an assortment of regulators with sometimes differing objectives and opinions have stymied recent efforts to get deals done. Besides the FDIC, there's also the Federal Reserve, the Office of Thrift Supervision, the Office of the Comptroller of the Currency, the Treasury Department and state officials. Not every bank falls under one or all of those agencies.
By contrast, private equity firms are accustomed to highly leveraged deals that entail little regulatory oversight, but offer huge returns for big investors.
"It's a very byzantine process, and when you try to explain this to private equity people, a lot of them just throw their hands up," says Walter Mix, a former bank regulator who is advising private equity firms on such deals as a managing director at the consulting group LECG.While some say attractive valuations will continue to drive PE firms toward bank acquisitions, others contend that potential rewards are not so great, on a relative, risk-adjusted basis. For instance, San Diego State University finance professor Nikhil Varaiya estimates that bank deals today offer a return on equity of 15% to 20%. A typical private equity return target in recent years has been more than twice that percentage.