It would be a gross understatement to say that the United States banking industry has a substantial need for capital. Every quarter, and often more frequently than that, comes news of additional asset writedowns at US banks, particularly those with extensive exposure to the housing market. Analysts predict continuing writedowns and a corresponding need for capital. One source of such capital is private equity firms, which, over the last decade, have been extremely successful in attracting funding from a wide variety of sources. Although every bank regulator will say that capital is king in times of stress, current Federal Reserve Board (FRB) regulations and interpretations pose obstacles to contributions from private equity firms to the US banking industry. These regulations and interpretations can be modified without sacrificing bank safety and soundness or the policy concerns behind the Bank Holding Company Act.
Regulations
In the first instance, it is necessary to understand...