Mzkitty
I give up.
Saw this on another board, people were upset about it:
The U.S. Federal Reserve has already taken several unprecedented steps to assist investment banks, including allowing them to access its short-term lending facilities, collateralize their borrowings with illiquid securities of questionable market value, and brokering and funding the sale of Bear Stearns to JPMorgan Chase.
Now the Fed is believed to be considering easing rules to allow private equity firms to take substantial holdings in bank shares, as banks are finding themselves increasingly unable to attract traditional sources of capital.
--Ordinary investors have little appetite for investing in bank shares. Banks with the greatest need for capital are therefore unlikely to seek additional funding via a public share offering, especially as nearly all bank shares issued in the last year are currently trading below their offering price.
--Sovereign wealth funds have made significant investments in bank shares, and these trends can be expected to continue. However, the appetite of these entities for bank investments is limited, particularly in the weakening investment climate and the conditions that some in Congress seek to impose.
--Other than JPMorgan's (nyse: JPM - news - people ) emergency acquisition of Bear Stearns, strong banks have been unwilling to burden their balance sheets by acquiring weaker banks or their subsidiaries.
Given these constraints, the Fed is considering easing rules that limit the ability of private investors to take significant investments in banks without subjecting themselves to federal regulatory scrutiny. However, any move to allow private equity funds to increase their bank investments will carry major regulatory implications, forcing an uneasy marriage between lightly regulated private equity firms and the highly regulated banking sector.
--Transparency. One major driver of the credit crisis has been a lack of transparency, with investors unable to value and weigh the merits of respective investments. Private equity firms are typically very secretive about their investments. Increasing the involvement of private equity firms in banking operations could exacerbate market transparency concerns.
--Market manipulation. Additionally, securities regulators are understood to be investigating an alleged upsurge in insider trading and other forms of market manipulation. Ample anecdotal evidence suggests that some hedge funds may be taking large short positions in banking shares and then spreading rumors to drive share prices down. Increasing reliance on capital sources accustomed to light regulatory scrutiny could further market innuendo that makes such manipulation possible.
Yet given the magnitude of the credit crisis and the more general concerns over U.S. investment prospects, the Fed is not in a strong position to impose stringent conditions for receipt of investments from such sources. Indeed, expectations of weak second-quarter bank earnings may force the Fed to accelerate its plans.
--------------------
http://www.forbes.com/business/2008/07/03/fed-bank-credit-biz_cx_0704oxford.html
The U.S. Federal Reserve has already taken several unprecedented steps to assist investment banks, including allowing them to access its short-term lending facilities, collateralize their borrowings with illiquid securities of questionable market value, and brokering and funding the sale of Bear Stearns to JPMorgan Chase.
Now the Fed is believed to be considering easing rules to allow private equity firms to take substantial holdings in bank shares, as banks are finding themselves increasingly unable to attract traditional sources of capital.
--Ordinary investors have little appetite for investing in bank shares. Banks with the greatest need for capital are therefore unlikely to seek additional funding via a public share offering, especially as nearly all bank shares issued in the last year are currently trading below their offering price.
--Sovereign wealth funds have made significant investments in bank shares, and these trends can be expected to continue. However, the appetite of these entities for bank investments is limited, particularly in the weakening investment climate and the conditions that some in Congress seek to impose.
--Other than JPMorgan's (nyse: JPM - news - people ) emergency acquisition of Bear Stearns, strong banks have been unwilling to burden their balance sheets by acquiring weaker banks or their subsidiaries.
Given these constraints, the Fed is considering easing rules that limit the ability of private investors to take significant investments in banks without subjecting themselves to federal regulatory scrutiny. However, any move to allow private equity funds to increase their bank investments will carry major regulatory implications, forcing an uneasy marriage between lightly regulated private equity firms and the highly regulated banking sector.
--Transparency. One major driver of the credit crisis has been a lack of transparency, with investors unable to value and weigh the merits of respective investments. Private equity firms are typically very secretive about their investments. Increasing the involvement of private equity firms in banking operations could exacerbate market transparency concerns.
--Market manipulation. Additionally, securities regulators are understood to be investigating an alleged upsurge in insider trading and other forms of market manipulation. Ample anecdotal evidence suggests that some hedge funds may be taking large short positions in banking shares and then spreading rumors to drive share prices down. Increasing reliance on capital sources accustomed to light regulatory scrutiny could further market innuendo that makes such manipulation possible.
Yet given the magnitude of the credit crisis and the more general concerns over U.S. investment prospects, the Fed is not in a strong position to impose stringent conditions for receipt of investments from such sources. Indeed, expectations of weak second-quarter bank earnings may force the Fed to accelerate its plans.
--------------------
http://www.forbes.com/business/2008/07/03/fed-bank-credit-biz_cx_0704oxford.html
