Fed to Ease Restrictions for Bank Investors
The Federal Reserve moved to make it easier for private-equity funds and other investors to own large stakes in banks without triggering its oversight, in a plan that could also make it easier for financial technology startups to obtain investment cash.
The plan makes explicit how the Fed determines if investors control a firm. Investors often want to avoid controlling a bank—because that triggers Fed supervision and a host of regulatory restrictions.
Fed Vice Chairman for Supervision Randal Quarles said the agency’s policies on bank control have been difficult to parse, except for people “who have spent a long apprenticeship in the subtle hermeneutics of Federal Reserve lore, receiving the wisdom of their elders through oral tradition.”
Mr. Quarles added the plan would establish “a broadly applicable and uniform set of rules to address the large majority of control fact patterns.” The rules are generally “consistent” with current Fed practice with some “targeted” changes, he added.
The Fed’s proposed “bright-line” rules could help investors shape their strategy to avoid triggering the extra regulations that comes with a control determination. Those regulations include restrictions that have made it harder for banks to make investments in a wave of fintech startups out of Silicon Valley —because control by a bank could limit the startups’ ability to engage in nonfinancial activities.