What have you always wondered about the economy? Tell us
Fallout: The Financial Crisis

FDIC hesitant about private equity

Alisa Roth Aug 24, 2009
HTML EMBED:
COPY
Fallout: The Financial Crisis

FDIC hesitant about private equity

Alisa Roth Aug 24, 2009
HTML EMBED:
COPY

TEXT OF STORY

Steve Chiotakis: Nearly 80 banks have failed so far this year. And the Federal Deposit Insurance Corporation — that’s the FDIC to you and me — is having a hard time finding companies interested in buying those banks. Among possible buyers are private-equity groups. But until now, the FDIC has been reluctant to let them in. Alisa Roth explains why.


Alisa Roth: Private equity firms have a lot of money. And a lot of them would like to own some of these failed banks. Stephen Kaplan is a professor at the University of Chicago’s business school. He says some people are worried the private equity firms would take advantage of the situation.

Stephen Kaplan: They’ll somehow use the bank to help finance some of their companies in a way that isn’t economically rational or economically sound.

Or that they might try to make a quick buck by quickly flipping the banks to another buyer. David Brophy specializes in private equity at the University of Michigan’s business school. He says in some ways, private-equity firms would be less threatening to the FDIC than some other options, like foreign buyers.

David Brophy: I think when they think about the private-equity business it’s the devil you know.

That devil may not be as evil as he’s made out to be. He says private-equity firms may have a reputation for flipping assets quickly. But these days, they’re more likely to spend time fixing up companies before they sell them off.

In New York, I’m Alisa Roth for Marketplace.

As a nonprofit news organization, our future depends on listeners like you who believe in the power of public service journalism.

Your investment in Marketplace helps us remain paywall-free and ensures everyone has access to trustworthy, unbiased news and information, regardless of their ability to pay.

Donate today — in any amount — to become a Marketplace Investor. Now more than ever, your commitment makes a difference.