FDIC May Ease Private Equity Buys Of Failed Banks

MARCY GORDON

WASHINGTON (AP) — Federal regulators appear ready to temper proposed restrictions on private equity firms seeking to buy failed banks, as the government seeks to lure 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 Aug. 26 and publicly adopts final guidelines, people familiar with the issue said Thursday.

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 already 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 U.S. 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 Chairman 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 in early July when the policy was opened to public comment.