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Since the financial crisis hit in 2008, there have been at least 187 private equity transactions involving banks, worth more than $31 billion in all. For better or worse, these new investors are changing the industry. Here's how.
November 1
In promoting her new memoir about the financial crisis, Sheila Bair has maintained the unfailingly candid style she had as a regulator, offering a critical view of how major players in Washington and on Wall Street responded to the massive upheaval in the bank sector.
But the former FDIC chairman sees little to criticize in the approach that regulators took toward private equity. During a visit with American Banker last month, Bair said she has no regrets about the terms that were set for private equity firms interested in shopping for bargains in the bank industry.
"I think we struck the right balance," she said. "We let them bid, but we put higher capital requirements on them" and took other steps meant to prevent "flipping" by private equity firms that invested in the sector.
One area where she thinks Washington made a mistake, however, was in neglecting to follow through with a plan that would have let private equity firms, as well as other kinds of investors, purchase distressed mortgage securities from a special facility into which banks were supposed to be able to sell certain kinds of troubled assets.
The Public-Private Investment Funds program, or PPIF as it was known, was approved by the FDIC and Federal Reserve and was announced by Treasury Secretary Tim Geithner. But the facility never got off the ground.
In Bair's mind, that was a missed opportunity to put bad assets into the hands of investors with the wherewithal to hold them and wait patiently for a turnaround.
"Private equity firms can be very, very good at that," Bair said, "and I wish we had done that. It would have helped the economy … to clean up bank balance sheets."
