Softer FDIC Rules Come Too Late

WASHINGTON (TheStreet) -- Rules passed Wednesday outlining how private investors must go about acquiring banks were less stringent than the Federal Deposit Insurance Corp. had initially proposed, but private-equity interest in such deals has already been damaged.

In a 4-to-1 vote, the FDIC approved a measure that eased several standards that had become hot-button issues in private-equity circles.

The new rules require such deals to maintain a Tier 1 common equity ratio of 10% rather than the original 15% threshold proposed. It also dropped a "source of strength" requirement that would have forced investors to put up more capital if the bank target continued to bleed cash.

Finally, the FDIC moderated a proposal that would have hurt PE firms building a network of branches through several acquisitions. The so-called cross-guarantee provision that would have restricted the holding company from using assets of one bank to support another was narrowed to only apply to investors that own 80% or more of the company.

Although the revised regulations were less severe, the FDIC adequately spooked investors when releasing its initial proposal in early July. During a public-comment period, there was an outcry from the private-equity sector about the government's bait-and-switch tactics, and the burden the new rules would place on those who had the capital and interest to acquire flailing banks.

The most high-profile comment came from distressed-investment titan Wilbur Ross, whose firm WL Ross & Co., an affiliate of Invesco (IVZ), which was part of a consortium that acquired BankUnited earlier this year.