Fed Loosens Reins on Private Funds Buying Into Banks

But some worry risky loans will result
By Rob Quinn,  Newser Staff
Posted Sep 23, 2008 5:51 AM CDT
A WaMu branch office is shown Friday, July 25, 2008 in New York.    (AP Photo/Mark Lennihan)
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(Newser) – The Fed has loosened the rules that curtailed private investments in banks, the Wall Street Journal reports. The move may inject more cash into the financial system—if private equity chooses to invest—but will raise fears of profit-hungry investors snapping up stakes in banks to make quick cash with risky loans.

Under the new rules, an investor can take a stake of up to 33% in a bank without being deemed a controlling investor—a designation that would open up the investor to direct scrutiny from the Fed. Some experts say the relaxed rules don't mark a complete turnaround for the Fed, but may encourage investors to help shore up a banking industry that hasn't had any big injections of investor cash since April.