FDIC may ease private equity buys of failed banks

WASHINGTON --- Federal regulators appear ready to temper proposed restrictions on private equity firms seeking to buy failed banks.

The Federal Deposit Insurance Corp., which proposed the new policy last month, is expected to make the changes when its board meets Wednesday 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 three to five years, would face strict capital and disclosure requirements under the FDIC proposal.

Seventy-seven banks already have failed this year, 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 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. .

FDIC spokesman Andrew Gray declined to comment Thursday 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 may be overly restrictive.

The most notable requirement is for private equity investors to maintain a robust amount of cash in the banks they acquire, keeping them at a minimum 15 percent capital leverage ratio for at least three years. Most banks have lower leverage ratios -- a key measure of financial strength that gauges an institution's capital divided by its assets.

Also under the proposed policy, investors would have to own the banks for at least three years and face limits on their ability to lend to any of the owners' affiliates.