Cash-strapped banks are hoping the Federal Reserve will loosen restrictions keeping private-equity firms from giving them capital.

"This would be a bit of a sea change for the Fed," Gregory Lyons, head of the financial services practice at law firm Goodwin Procter LLP, told The Wall Street Journal. "A number of banks would love to access the private-equity pool. It's a clean slug of money."

Under federal law, ownership of more than 9.9% of a bank subjects the entity to regulatory scrutiny. The Fed has been reluctant to allow private-equity firms to own more than 9.9% unless they agree to limit their voting power, but such restrictions are a turn-off to the firms.

To own more than 24.9% of a bank, the entity must register as a bank holding company, and can even be forced to serve as a "source of strength" for the bank.

Fed officials have met with several big buyout firms recently-including The Carlyle Group, J.. Flowers & Co., Kohlberg Kravis Roberts & Co. and Warburg Pincus-to discuss the obstacles, The Journal writes.

"We are looking at ways we can make those things more workable and gain from the experience we've had over the past few years," said Federal Reserve General Counsel Scott Alvarez.

(c) 2008 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

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