Lobbyists 1

There was a really weird article in yesterday's New York Times about how private equity firms want to invest in ailing banks and the Fed is standing in their way. The article describes the Fed's various reasons for not letting PE funds control banks. It isn't until about halfway through that the author mentions that it really isn't up to the Fed because private equity firms can't legally control banks. The Bank Holding Company Act of 1956 (12 USCA 1841 et seq) says that a company that controls a bank can't also control "any company which is not a bank."

Private equity firms, it turns out, are lobbying to change the law so that they can buy control of banks. They've already begun finding ways around the law, but they want to operate in the open and they want government help.

Back in January, the FDIC sold OneWest (nee IndyMac) to a bunch of private equity investors (JC Flowers, John Paulson, George Soros). This transaction didn't violate the Bank Holding Company Act because none of the private equity investors controls IMB Holdco - the holding company that owns IndyMac. As long as the investors don't form an "association" or a "partnership" they won't be considered a bank holding company.

The article also describes how JC Flowers got around the law by using his own money to buy a bank in Missouri.