{"id":191289,"date":"2009-09-05T18:52:00","date_gmt":"2009-09-05T23:52:00","guid":{"rendered":"https:\/\/www.panix.com\/~msaroff\/40years\/2009\/09\/05\/did-the-fdic-cave-to-private-equity-buccaneers\/"},"modified":"2009-09-05T18:52:00","modified_gmt":"2009-09-05T23:52:00","slug":"did-the-fdic-cave-to-private-equity-buccaneers","status":"publish","type":"post","link":"https:\/\/www.panix.com\/~msaroff\/40years\/2009\/09\/05\/did-the-fdic-cave-to-private-equity-buccaneers\/","title":{"rendered":"Did the FDIC Cave to Private Equity Buccaneers?"},"content":{"rendered":"

This is a real conundrum, because while the FDIC’s vote to lower Tier 1 capital requirements for private equity purchasers of banks from 15% to 10%<\/a> appears to be a capitulation, there is a twist in these regulations<\/a>, in that the regulation does not call for 15% Tier 1 common equity, not just Tier 1 assets:<\/p>\n

Under the rule that was adopted, such banks will have to maintain a 10% capital ratio, but the definition of capital isn\u2019t Tier 1, it\u2019s Tier 1 common equity.<\/p>\n

Tier 1 common equity is close to tangible common equity, which is a stronger measure of capital than simple Tier 1.<\/p>\n

…<\/p>\n

Common equity is the best cushion of all because it sits in the first loss position. Preferred equity \u2014 which is included when calculating Tier 1 but excluded when calculating Tier 1 common \u2014 failed totally last year. Banks had issued a bunch in late \u201807 and early \u201808 in order to boost Tier 1, but because common was nearly overwhelmed with losses, investors higher up the capital structure panicked.<\/p>\n

To be sure, the switch to common won\u2019t have any effect on the day-one economics of these deals. Subordinated debt is wiped out when FDIC takes failed banks into receivership.<\/p>\n

But this will discourage private equity guys from polluting the capital structure down the line. Hybrid debt issuance that would qualify as capital under Tier 1 won\u2019t qualify under Tier 1 common.<\/p><\/blockquote>\n

Additionally, they will require that this level of capitalization be maintained for 3 years<\/a>, and be audited more frequently to ensure that necessary capital is maintained.<\/p>\n

I think that it is still an undeserved win for private equity pirate types, but it’s better than it appeared at first glance.<\/p>\n","protected":false},"excerpt":{"rendered":"

This is a real conundrum, because while the FDIC’s vote to lower Tier 1 capital requirements for private equity purchasers of banks from 15% to 10% appears to be a capitulation, there is a twist in these regulations, in that the regulation does not call for 15% Tier 1 common equity, not just Tier 1 …<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1004,985],"tags":[],"class_list":["post-191289","post","type-post","status-publish","format-standard","hentry","category-finance","category-regulation"],"_links":{"self":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts\/191289"}],"collection":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/comments?post=191289"}],"version-history":[{"count":0,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts\/191289\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/media?parent=191289"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/categories?post=191289"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/tags?post=191289"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}