The Business Law Prof Blog is reporting about FDIC chairwoman’s possible decision to reduce the capital requirement to purchase a failed bank.

The Blog suggests Ms. Blair’s decision is causing her to “eat crow” because she originally wanted to punish private equity capitalists for the role in our economic crisis.

I don’t think it matters who caused our economic crisis. That is one of those fruitless conversations, like which came first, the chicken or the egg. We are all in this together, private equity, financial institutions, small business owners.

Private equity capitalists are risk takers. They also have the business knowledge to properly evaluate that risk and can provide intellectual capital to help mitigate that risk. Traditional financial institutions are the opposite. They are not risk takers; nor do they have intellectaul capital to re-structure and grow. A failing bank cannot lend to anyone. However, a healthy bank will lend to a company backed with private equity–because the risks of failure are minimized. Ms. Blair is encouraging private equity to invest again, so banks will, in turn, lend again.

So, perhaps the Business Law Prof Blog should not label her strategy as “eating crow”, but rather, a sophisticated effort to involve a previously-unengaged stakeholder in ending our economic crisis.

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Sharmil McKee
Business Lawyer
blog@mckeeoffice.com

McKee Law Office
Philadelphia, Pennsylvania
http://www.MckeeOffice.com