FDIC Seeks New Investors in Failed Banks

By STEPHEN MANNING

posted: 149 DAYS 1 HOUR AGO

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WASHINGTON (July 2) - The Federal Deposit Insurance Corp. proposed new guidelines Thursday for potential buyers of failed banks as the government seeks to sell a growing number of closed financial institutions.

The FDIC wants to attract a new class of private equity fund buyers for banks that collapse during the financial crisis, but must provide more transparency than some of those potential investors are accustomed to.

One proposal would require investors to keep the banks they acquire well capitalized at a 15-percent leverage ratio — or the bank's capital divided by assets— for at least three years.

Investors also would face limits on their ability to sell assets and lend from the banks they acquire. Investors that operate so-called "silo" organizations where it's hard to determine ownership of the group would not qualify as potential buyers

FDIC Chairman Sheila Bair said some of the proposals likely will be "contentious," especially the one on capital requirements. But she said the FDIC wants to attract more potential investors to auctions for failed banks.

"We want nontraditional investors," she said at an FDIC board meeting. "There is a significant need for capital and there is capital out there."

Regulators already have shut down 45 banks this year, many of them community or regional institutions.

But some recent auctions have been lackluster, with many investors taking a pass because the banks for sale are too small, or because they have financial troubles of their own.

More bank closures are expected as the longest recession since World War II has hobbled financial institutions of all sizes.

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2009-07-02 12:51:51