Wednesday, September 24, 2008

Why Regulators are cautions about letting outside investors take a big role at banks

The new move could be controversial. Regulators have historically been cautious about letting profit-hungry outside investors take a big role at banks. One reason is that the investors might push for loans to risky borrowers to make a quick profit. If the bank fails, that would cost the government because of the federal insurance that covers bank deposits, generally up to $100,000. Another fear: A private-equity firm might try to force a bank in which it invests to lend money on favorable terms to other companies in the private-equity firm's stable.

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