Paulson Challenges the FDIC

July 24th, 2009
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Paulson & Co, the $28 billion hedge fund run by John Paulson, has directed a letter to the Federal Deposit Insurance Corporation (FDIC) regarding the new rules governing failed banking institution takeovers proposed earlier this month. According to New York Times' DealBook, Paulson is one of the first to publicly voice concerns that many private investment firms have about these new regulations. In the letter, Paulson stated that the new proposals are so heavy they would make it difficult for private equity firms to recapitalize failed banks. Among the proposals, Paulson finds most problematic the rule requiring investment banks to hold almost double the capital that traditional banks are required to have in their possession. This places firms seeking to acquire failed banks at considerable disadvantage to strategic buyers. Additionally, Paulson wants the holding period for an acquired bank to be reduced from three years to 18 months and disagrees with the proposed rule prohibiting firms with offshore investment vehicles from using those funds to buy failed banks. Although Paulson agrees that offshore funds created solely for the purpose of acquiring failed banks should be banned, the firm feels that firms with pre-existing funds, such as his own, should be exempted.

Not everyone shares Paulson's sentiments. The FDIC has been placed in the difficult position of trying to encourage private investors to recapitalize the banking system without seemingly "facilitating big profits for private equity firms" and in a comment letter sent to the FDIC, the Weintraub family applauds the FDIC for their "stringent" new regulations and efforts to prevent another crisis.
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Paulson & Co.
Related People: Andrew Hoine; John Paulson; Mena Gerowin*; Mike Barr; Sheru Chowdhry; Stuart Merzer
Related Entities: Paulson Advantage Master Ltd; Paulson Advantage Plus Master Ltd; Paulson Real Estate Recovery Fund; Paulson Recovery Fund; PCI
Related Article Tags: Multi-Strategy, Long Short, Equity, Debt and Global Macro Hedge Fund News


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