UPDATE 2-Private equity slams proposed banking rules

(Adds background on industry, comments in paragraphs 7-14)

By Megan Davies

NEW YORK, July 2 (Reuters) - Private equity investment in troubled banks will be deterred and curbed by stringent guidelines proposed by U.S. bank regulators, executives and an industry body said on Thursday.

The industry, with around $1 trillion of uncommitted capital to invest, provides a pool of potential capital for struggling companies to tap.

But preliminary guidelines proposed by the Federal Deposit Insurance Corp on Thursday will deter the industry from investing in banks, executives warned.

"The issue that the regulators have to deal with is that banks need capital, but they don't want people to make too much money," said Steven Kaplan, a professor of finance specializing in private equity at the University of Chicago. The FDIC proposals would make it harder for investors to make money, he said.

"If you're a private equity investor you have to be a little crazy to want to deal with the FDIC and the government," Kaplan added.

The guidelines call for a Tier 1 leverage ratio of 15 percent for three years. Currently, well-capitalized banks must have Tier 1 captial of at least 6 percent of risk-weighted assets.

The new regulations would call for private equity groups to maintain their investments in banks for three years, unless they get special approval from the FDIC. For full story [nN0272484].