Compromise could follow storm over banking rules

By Megan Davies and Karey Wutkowski

NEW YORK/WASHINGTON (Reuters) - A top bank regulator provoked a firestorm when it produced stringent guidelines for private equity investment in troubled banks, but there have been signs of compromise from the regulator.

The Federal Deposit Insurance Corp is trying to reach a middle ground with private equity leaders because they represent a crucial source of capital as the United States tries to resuscitate its struggling banking industry.

The private equity industry, which has around $1 trillion of uncommitted capital to invest, slammed the FDIC's guidelines when they were issued July 2 as being far too tough.

Executives privately complained the industry was being discriminated against and that the rules would only serve to curb the flow of money into the troubled sector.

The FDIC regulates more than 8,000 banks and insures their deposits. It has said it needs to issue tough guidelines to ensure that private equity groups are interested in nursing ailing banks back to health and not just scooping up their remaining good assets.

At the top of the list of complaints was that the guidelines call for a Tier 1 leverage ratio of 15 percent for three years -- far higher than that required of well-capitalized banks.

Other bugbears surround a three-year ownership proposal and a cross-guarantee guideline, meaning that, if one firm owns two banks, the healthier institution must provide support for the weaker bank if it falters.

At a round-table discussion on Monday, however, the FDIC indicated that the 15 percent capital threshold was "flexible" and a key area for negotiation, according to two sources that were briefed on the talks and one source familiar with the situation. They asked not to be identified because they were not authorized to speak and the talks were not public.