Deposit Insurance

New Rules Restrict Bank Sales

(THE NEW YORK TIMES) - New federal rules that might have encouraged private equity firms to snap up troubled banks could wind up keeping those buyers in their seats.

The Federal Deposit Insurance Corporation board on Wednesday imposed tough new restrictions on private equity firms seeking to buy failed institutions, although they eased more onerous proposals in hopes of luring them to the table.

Facing a dearth of traditional bank buyers, the F.D.I.C. board tried to strike a balance between the need for fresh capital to shore up the banking system, and worries that private equity buyers might engage in aggressive practices that could put its deposit insurance fund at risk.

So far, regulators have allowed only a few groups of private equity firms to take over failed banks, including IndyMac Bank of California and BankUnited of Florida, with assurances that experienced bankers would run the operations.

Private equity firms said the new rules would make them less likely to buy a failed institution on their own. However, a few special exemptions are intended to encourage them to team up with a bank partner or a large group of private investors — strategies often considered last resorts because they must give up control and profits.

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