24 April 2008

Fed welcomes investments by SWFs

The Federal Reserve welcomes the investments by foreign sovereign wealth funds in US banks and other financial institutions in distress from the recent market turmoil and does not see them as a threat to the US banking system, Scott Alvarez, Fed General Counsel, said before the US Senate. The recent wave of sovereign wealth fund investments in U.S. financial institutions consists of non-controlling investments below 10 percent of voting equity, Alvarez noted. 

The Board has long taken the position that foreign government-owned corporations such as sovereign wealth funds are companies, he said. “Thus any proposed controlling investment in a U.S. bank or bank holding company by a sovereign wealth fund would be subject to Federal Reserve approval.”

Most sovereign wealth funds have structured their investments so as not to trigger the thresholds for review and approval.  Instead, sovereign wealth funds have limited their investments to amounts that represent less than 10 percent of the voting shares of the banking organization and have designed their investments to be passive and without the connections or relationships that might allow the sovereign wealth funds to control the U.S. banking organization.

The ability of U.S. financial institutions to raise large amounts of capital from national and international investors under ‘stress conditions’ indicates the confidence in the transparency and ultimate resiliency of these institutions, he said.

Full speech

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