Private Equity Investing in Banks

Bernanke Hopes For Private Equity Investing In Banks

Federal Reserve Chairman Ben Bernanke gave a hopeful forecast in a rare interview on “60 Minutes.” Mr. Bernanke began the conversation with a surprisingly optimistic prediction saying “I do think we will see the recession coming to an end probably this year. We’ll see recovery beginning next year, and it will pick up steam over time.”

While much of the interview covers the Federal Reserve’s actions throughout this economic crisis, Bernanke made some interesting remarks about the need for private equity to stimulate the economy. Bernanke highlighted the need for private equity firms to invest in struggling banks as a crucial step in the recovery process:

“One sign would be that a large bank would be successful in raising private equity. Right now all of the money is sitting on the sidelines saying we don’t know what these banks are worth and we don’t know if they are stable, and they are not willing to put their money into the banks.”

Skip to the end of this video for his comments on private equity or check out the full interview here:

While the Federal Reserve has made some promising motions to invite private equity firms to invest in banks, some are arguing that it has not done enough. The Federal Reserve has loosened some regulations that prevent private equity firms from investing in banks for example private equity firms may now hold bank board seats and communicate with management. (For the Federal Reserve’s changes to the banking regulation see this document.)

John Douglas, the chairman of the banking and financial institutions group at Paul Hasting’s, offers an interesting take on the loosened regulations for private equity in banks. He argues that the Federal Reserve has not gone far enough and that private equity firms should be allowed to assume a controlling interest in a bank. Douglas believes that it is a good opportunity for private equity firms and that they should be allowed to invest in the banks providing them with much needed capital. Here he is talking about private equity’s role in banks:

Tags: Private equity, private equity federal reserve, private equity recession, private equity Ben Bernanke, Private Equity banks, private equity investing in banks, private equity investment banks