August 27, 2009

Federal regulators approved watered-down guidelines for private-equity firms seeking to snap up failed U.S. banks, in a bid to tap a new and controversial source of capital for financial institutions.The new rules still impose significant restrictions on private-equity ownership of banks, but after a ferocious lobbying effort by the buyout industry, the Federal Deposit Insurance Corp. backed away from an initial set of tough proposals that would have imposed heavy capital requirements.

The five-member board of the FDIC voted 4-1 in favor of rules that would require buyout firms to hold on to failed banks they purchase for at least three years. Investors would also be required to maintain larger amounts of high-quality capital at their acquired banks. In both cases, the rules are substantially tougher than those for regular banks competing for the same spoils.