Fed says private equity good source of capital

WASHINGTON (Reuters) - The Federal Reserve considers private equity to be a good source of capital for financial services companies battered by the credit crisis, top regulators said on Thursday.

The Fed is examining its rules and wants to clarify what constitutes a controlling interest in a bank, which could clear the way for cash infusions from private equity firms.

"Private equity is a very good source of capital," Federal Reserve Chairman Ben Bernanke told a congressional hearing to examine systemic risk and the financial markets.

Bernanke told the House Financial Services Committee that there are issues related to effective control as established by the Bank Holding Act, which has a 25 percent ownership threshold.

Current rules make it hard for investors to buy more than 9.9 percent of a bank's stock without permission and increased supervision from regulators.

Rules also make it difficult to own more than 24.9 percent without becoming a bank holding company, which restricts investments outside the banking sector.

That would not comport with private equity firms, which typically take controlling stakes in all types of underperforming businesses and try to turn them around.

Bernanke said the Fed wants to make a clearer statement about when private equity can come in and take a large stake in a financial institution.

The central bank has already reached out to large private equity firms like Carlyle Group to ascertain what kind of obstacles they face.