INSTANT VIEW: U.S. regulators vote on investment rules

NEW YORK (Reuters) - U.S. banking regulators voted to change the rules applying to private investments in troubled banks.

The board of the Federal Deposit Insurance Corp (FDIC) voted on Wednesday 4-1 to change previous proposals that some regulators and potential investors said had threatened to scare away much-needed capital from the banking industry.

The following are comments on the FDIC's votes on Wednesday:

COMMENTS:

WILLIAM STERN, PARTNER, GOODWIN PROCTER, BOSTON

"I think they could have done more on capital (the capital level), but certainly having a 10 percent Tier 1 common equity ratio is helpful ... They could have gone further there, but that's helpful.

"Likewise on cross guarantees; I think many people feel that a cross guarantee provision was completely unnecessary ... but nevertheless, bumping the threshold up to 80 percent common ownership is a more workable framework.

"Certainly dropping 'source of strength' altogether from the proposal was enormously helpful.

"On balance I think this will do quite a bit to alleviate investor concerns."

LAWRENCE KAPLAN, OF COUNSEL, PAUL HASTINGS

"There were a lot of very good changes. Clearly, they reviewed the comments. They listened to folks. Things such as the source of strength being gone is good; limiting the cross guarantee to 80 percent -- that's very good.

"They made significant improvements. What was very reassuring, as Director Dugan pointed out, they are going to review the policy in six months. So this is not a done deal.

"There is no longer a 3-year look-back, which had really sent a wrong signal ... That was actually a very good provision, by saying, it only applies to deals going forward; they are not going to revisit other deals."

BRETT BARRAGATE, PARTNER, JONES DAY

"On the whole, it's favorable to private equity. It's positive in terms of attracting private equity money.

"It eased enough rules to attract private equity investors who are really interested in investing in failed banks, but did not ease them to a point where this is going to become speculative.

"They did not go down the road of making it so easy that private equity is essentially just going to take a gamble on a bank. There is enough at risk."

THOMAS VARTANIAN, PARTNER AND CHAIR OF THE FIRM'S FINANCIAL

INSTITUTIONS TRANSACTIONS GROUP, FRIED FRANK, WASHINGTON, D.C.

"I think, in effect, what's happened here is that the individual requirements have been significantly pared back, so ... the only issue really left that confronts private equity is the question of whether the 10 percent Tier 1 common equity makes sense.

"It can't be answered generally but on a deal-by-deal basis; based on the nature of the bank, the quality of its assets, the number of other bidders that are around ... and the long-term prospects for the bank.

"In some respects, a higher capital requirement can end up costing the FDIC more money -- because if the bank's in bad shape, and there aren't a lot of strategic bidders, and private equity bids are based on 10-percent capital ... they're going to have to ask for more loss-sharing.

"The fundamental question that I think a lot of private equity firms will have to confront is -- 'Do I want to go into a system where I'm treated differently?'"

HAROLD REICHWALD, BANKING AND SPECIALTY FINANCE PRACTICE

CO-CHAIR, MANATT, PHELPS & PHILLIPS

"The reports that I have read suggest that if you want the most-favored nation treatment as a private equity investor you have to link up with a bank holding company.

"This is the FDIC and the Federal Reserve getting together and assuring themselves that a linkage between a private equity and an existing bank holding company provides the maximum amount of protection against issues that they worry about.

"But I am not sure that private equity would agree that is the best way. Private equity always likes to be the master of their own fate. And this seems to link their fate to others, namely bank holding company.

"At the end of the day, I am not sure that those in the private equity community would view this as a panacea by any means."

(Reporting by Paritosh Bansal and Megan Davies)