Projo Biz Blog

U.S. Sen. Jack Reed, D-RI, expressed "serious concerns'' over the consistency of rules on whether private- equity firms can buy banks, citing the takeovers of BankUnited Financial Corp. and Flagstar Bancorp Inc. in a letter to regulators including Treasury Secretary Timothy Geithner.

"These activities represent another, particularly dangerous example of regulatory arbitrage whereby institutions and firms are shopping around a potentially risky activity until they find a regulator who will allow it,'' Reed wrote.

Reed, who leads a Senate Banking subcommittee that oversees the securities industry, addressed the letter to Geithner, Federal Reserve Chairman Ben Bernanke, Federal Deposit Insurance Corp. Chairman Sheila Bair and Office of Thrift Supervision Acting Director John Bowman.

The OTS cleared private-equity firm MatlinPatterson Global Advisers LLC to buy Michigan's Flagstar in January. The Federal Reserve has since indicated it won't approve similar deals and the FDIC, which oversaw the sale of BankUnited to buyout firms, including WL Ross & Co. and Carlyle Group, said last week it will provide "policy guidance'' for private-equity firms looking to buy ailing banks after global losses from the credit crisis topped $1.4 trillion.

"There is a need for private-equity investment in our banking system but there must be clear rules for all of the regulators,'' Reed said. "Private-equity firms are not transparent. There are potential conflicts with their other holdings, investors, management and sources of funding, much of which is not disclosed.''

 Tags  BankUnited Financial Corp. U.S. Sen. Reed

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