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Business columns: Keep private equity away from banks

The dust has hardly settled from last year&rsquo;s financial cataclysm, and already the seeds of the next crisis are being sown, said Robert Kuttner in <em><br /> The Boston Globe.</em>

Robert Kuttner
The Boston Globe

The dust has hardly settled from last year’s financial cataclysm, and already the seeds of the next crisis are being sown, said Robert Kuttner. Private-equity funds are now angling to take over failed banks on the cheap. “This is a profoundly bad idea.”

Firms engaged in ordinary commerce shouldn’t own banks. “If a regular business owns a bank, it can get access to capital on preferential terms and disadvantage its competitors.” The business can also strong-arm its captive bank into financing high-risk ventures that an independent bank might balk at. “It’s fine to do that with your own money, but not with deposits guaranteed by the government.”

The Federal Deposit Insurance Corp. is currently drafting rules that would make it difficult for private equity firms to own banks. The private equity firms, not surprisingly, are pushing back. The regulators should resist. We got into this mess “because federally guaranteed banks were acting like compulsive gamblers.” Let’s not make it easy for them to relapse.

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