Funds Can Buy More Bank

The Fed is allowing private equity and government investment funds to increase their maximum allowed ownership stakes in banks, allow board representation, and greater communication with management (WSJ). The Fed has loosened the definition of controlling stake to allow funds to own 33% of a bank of which a maximum of 15% can be invested in common shares. The Fed has said that investors can now have up to two director seats without having a controlling stake where the prior limit was one. Prior to this change, noncontrolling shareholders were generally banned from talks with top officers of the company.

Most funds are smarting from their investments in banks. It seems unlikely these regulatory changes will unleash a flood of investment.