FDIC may ease way for firms to buy failed banks
Rising defaults cause list to grow
WASHINGTON - Federal regulators appear ready to temper proposed restrictions on private equity firms trying to buy failed banks, as the government seeks to attract more potential purchasers amid a mounting tally of collapsed financial institutions.
The Federal Deposit Insurance Corp., which proposed the new policy last month, is expected to make the changes when its board meets on Wednesday and publicly adopts final guidelines, people familiar with the issue said yesterday.
Private equity firms, which generally buy distressed companies and then resell them after about three to five years, would face strict capital and disclosure requirements under the FDIC proposal.
Seventy-seven banks have failed this year amid rising loan defaults spurred by tumbling home prices and spiking unemployment, costing the deposit insurance fund - which is financed by assessments on US banks - billions of dollars. The FDIC, which seizes the banks and seeks buyers for their branches, deposits, and soured loans, has said the private equity industry can play a valuable role in injecting sorely needed capital into the banking system.
Still, FDIC chairwoman Sheila Bair said the proposed restrictions were intended to provide “essential safeguards’’ in light of concerns over private equity firms’ ability to apply adequate capital and management skill to banks they buy. “We are trying to find the best way to have a balanced approach,’’ Bair said early last month when the policy was opened to public comment.
Andrew Gray, an FDIC spokesman, declined to comment yesterday on what action the agency might take on the guidelines.
Industry interests say the FDIC proposal tipped the balance in a way that discourages private equity firms from buying banks. And two of the FDIC board members, Comptroller of the Currency John Dugan and John Bowman, acting director of the Office of Thrift Supervision, warned publicly that it might be overly restrictive.
The regulators “are interested in anything that can help them get rid of failed banks and failed banks’ assets,’’ said Chip MacDonald, an attorney at Jones Day in Atlanta, whose clients include private equity firms.
But the FDIC policy in its current form “doesn’t fly economically’’ for private equity buyers, he said.
Lawrence Kaplan, a former senior attorney at the Office of Thrift Supervision, said it is an interesting dilemma for the FDIC. “Chances are they’re going to temper that,’’ he said.