Does Dodd-Frank Contain a Virus for Private Equity Investments in Banks?

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A little-noticed provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) has the potential of curtailing significant investments by private equity firms in banks. Section 616(d) of Dodd-Frank adds a new Section 38A1 to the Federal Deposit Insurance Act (“FDIA”), which provides at subparagraph (b):

If an insured depository institution is not the subsidiary of a bank holding company or savings and loan holding company, the appropriate federal banking agency for the insured depository institution shall require any company2 that directly or indirectly controls the insured depository institution to serve as a source of financial strength for such institution.

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