FDIC Rolls Out Red Carpet for Private Equity (sort of)
August 31, 2009
| MoneyRates.com Senior Financial Analyst, CFA
The FDIC recently loosened the rules for private equity investments in banks. In the near term, this shouldn't cause so much as a ripple of reaction from depositors -- people don't generally think about who owns their banks, they just want to know that their money is safe and how to get the best savings account rates. Still, it's something to keep in the back of your mind in case your bank is bought out by private equity investors some time in the future.
In essence, what the FDIC did was lower the reserve requirement for investors who buy banks from 15% to 10%. If lowering the reserve requirement makes you uncomfortable, then consider that the reserve requirement for banks buying other banks is only 5%.
The FDIC's goal is to attract capital to the banking industry. With all the bank failures over the past year, the FDIC is rapidly drawing down its insurance funds and fresh capital would ease this burden. It helps that a great deal of money has fled the stock market over the past year, and that U.S. savings rates are up, but investment capital would provide another leg under the stool.
What does this mean to you? There's no reason to believe that private equity money would make a bank less secure, or systematically cause CD rates and other bank terms to be any worse or better than before. However, if you depend heavily on your bank for personal service, you might see a change if private equity investors start enforcing a cost-cutting regime. Still, don't judge until you see evidence for yourself -- in the meantime, having someone willing to invest in your bank is probably a good sign.
