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The good news: the latest version of the FDIC’s proposed rules for private equity investments in banks is no longer so ham-handedly restrictive that it would guarantee that not a dollar of private equity money would enter the banking business.

The bad news: the proposed rules are still kind of nutty. Why, for instance, should PE-owned institutions have to maintain a Tier 1 capital ratio of 10% (as the FDIC is lately said to propose) when everybody else can stay at 8%?

Are private equity investors somehow less prudent, or less trustworthy, or dumber than traditional bank managers? Based on how this last cycle shook out, that’s hard to believe.

The Wall Street Journal seems fine with the proposed two-tier system, but I don’t get why. The more private capital that can enter the banking business, the lower the government’s losses on failures will likely be over the long term.

And if Sheila Bair really does think that certain PE types are objectionable, she can simply disallow their proposed investments. Beyond that, let everyone play on a level field.

The final vote is tomorrow, by the way. . .

Source: Private Equity: Sheila Bair Still Has a Chip on Her Shoulder