ICBA News Release
FOR IMMEDIATE RELEASE
ICBA Urges FDIC to Adopt Proposed Policy Statement Concerning Private Equity Firm Acquisitions of Failed Banks
Washington, D.C. (August 10, 2009)—The Independent Community Bankers of America (ICBA) today expressed support for the FDIC’s Proposed Statement of Policy on Qualifications for Failed Bank Acquisitions, which provides guidance to private capital equity firms that are interested in acquiring or investing in failed insured depository institutions.
“ICBA generally supports the FDIC’s Proposed Policy Statement and commends the FDIC for issuing specific standards for private equity firms interested in purchasing insured depository institutions in receivership,” said Camden R. Fine, ICBA president and CEO. “ICBA shares the FDIC’s concerns that some private capital investment structures, particularly those typified by ‘silo’ organization arrangements, raise potential safety and soundness considerations and risks to the Deposit Insurance Fund (DIF). Too often the beneficial ownership and decision makers of private equity firms are too difficult to determine or ownership and control are separated.”
While some consideration could be given to lowering the proposed Tier 1 leverage ratio requirement from 15 percent, ICBA urges the FDIC to impose a much higher than normal capital requirement on private equity firms during the first three years following these acquisitions because of the special risks to the DIF.
“Private equity firms have a much different risk appetite than most bank investors and could force bank management to take much bigger risks,” Fine said. “Furthermore, since the Federal Reserve Board has liberalized the definition of ‘control’ under the Bank Holding Company Act, it is important that private equity firms be subject to more rigorous standards than other entities to preserve as much as possible the separation of banking and commerce.”
ICBA commends the FDIC for its proposals regarding source of strength, cross guarantees and continuity of ownership. To discourage the “flipping” of financial institutions, ICBA agrees that investors in private equity firms should be prohibited from selling the failed depository institutions for the three years following the acquisition.
ICBA looks forward to working with the FDIC on this important issue. To read ICBA’s comment letter to the FDIC, visit www.icba.org.